Home Office Deduction
To claim the home office deduction, a taxpayer must meet 2 requirements: 1) Regular and exclusive use for business – you must use part of your home regularly and exclusively for conducting business; 2) Principal place of your business – you must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction.
Both self-employed taxpayers and employees can claim the home office deduction. However, if the taxpayer is an employee, there is an additional requirement that the home office also must be for the convenience of the employer. This generally means the employer does not have a local office.
How to Report the Home Office Deduction
As an employee, you must itemize deductions on Schedule A (Form 1040) to claim a deduction for the business use of your home and any other employee business expenses. Self-employed tax filers who use part of their home in a trade or business and file Schedule C (Form 1040), report the deduction for business use of their home on line 30 of Schedule C (Form 1040).
Actual Method for Home Office Deduction
There are 2 options for calculating the dollar amount of the home office deduction.
The first option is based upon the actual percentage of your home used regularly and exclusively for business. This option requires the taxpayer to track expenses such as utilities, insurance, depreciation (or rent) for the entire house and then allocate those expenses based upon the percentage of the home used for regularly and exclusively for business purposes.
Simplified Home Office Deduction
Beginning in 2013, there is a second option. The new simplified method permits a $5 per square foot deduction for up to 300 square feet. Therefore, the maximum home office deduction is $1500 under this method. The new simplified home office deduction is electable on a year-by-year basis