If you work from home, the IRS might allow you to take a pretty substantial deduction for the business use of your residence. However, the deduction has some specific requirements you need to know about before claiming your home office on this year’s taxes. Here’s a rundown of this potentially valuable deduction, and what you need to know about the IRS’s definition of a “home office.”
What is the home office deduction?
If you use part of your home for business, the home office deduction is designed to allow you to deduct the expenses associated with the business usage of your residence.
There are two ways to calculate the home office deduction — the simplified and regular methods. Under the simplified method, the deduction is based on the square footage of the home office, rather than the actual expenses associated with the space. As of the 2016 tax year, this option allows for a deduction of $5 per square foot, up to an office size of 300 square feet, so a maximum deduction of $1,500.
On the other hand, the regular method of calculating the home office deduction involves adding up the actual expenses you incurred throughout the year. This includes any money you spent maintaining the office itself (such as repairing the flooring), as well as a proportional share of the entire home’s expenses, including but not limited to:
- Mortgage interest
- Rent
- Homeowners’ insurance
- Property taxes
- Utilities (electric, water, gas, sewer, garbage)
- Pest control services
- Whole-home repairs (a new roof, for example)
- Depreciation