Home Office Tax
Deduction - Principal Place of
Business
In order for your home office to qualify as your principal place of business you must
spend most of your working hours in your home office and most of your
taxable business income must come from
activities in your home office.
That's been harder to prove since the Supreme Court tightened this
tax definition in 1993.
To meet this tax test now, you must be able to show the IRS that your home office is your
most important place of doing business or that you spend more time working
in your home office than
anywhere else. So make sure you have tax records of your activities at your home
office and a log of the
time you spent working at your home office as opposed to your employer's office.
If your home office was in a structure not attached to your home, such as a stand-alone
garage, chances are you can take the tax deduction on your tax return with ease if you satisfy the exclusive use
tax test and regular basis tax test discussed earlier. A detached structure does not have to qualify
as a principal place of business or a place for meeting patients, clients, or customers.
Home Office Tax
Deduction - What's tax deductible?
You can deduct on your tax
return real estate tax, mortgage interest, utilities, operating expenses, and
depreciation. You cannot deduct on your tax return the total that you incur for all of the above expenses.
You must allocate the expenses to business and personal use on your tax
return. Use one of the two (2)
following methods:
Home Office Tax
Deduction - Tax Deduction Limits
Your tax deductions on your tax return for utilities, maintenance, and insurance costs, depreciation, or rent,
may not exceed the net income derived from your home office after mortgage interest, real
estate tax, and casualty losses are subtracted. If you have no income for the
tax year no
tax deduction is allowed on your tax return. You may carry forward to
future tax years any tax deductible expenses disallowed in
the current tax year.
Home Office Tax
Deduction - Sideline Businesses
If you have a principal occupation and also have a sideline business the expenses of
the sideline business are tax deductible on your tax return if the above
tax tests are met.
Use Form 8829
to figure
your tax deductions on your tax return.
