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Home Office Usage that Qualifies for Tax Deduction

Home Office Usage that Qualifies for Tax Deduction
Home Office Usage that Qualifies for Tax Deduction
IRS Publication 587

Tax deduction for home offices are one of the many benefits available to business owners and telecommuters. With the reward comes the added responsibility of ensuring the claim for deduction figured properly. Before jumping in and immediately claiming deduction for the home office, be sure your specific use or operation qualifies.

Employee Use

If an employee uses part of his or her home to conduct business for an employer, the employee may qualify for a tax deduction. In order to qualify, the business conducted in the home must be for the convenience of the employer. If the employer has provided the employee with office space, but the employee is conducting work activity at home as a preference, the home office does not qualify for deduction.

Regular Use

A specific area in the home used on a regular basis to conduct business activity. One hundred percent of the time used to conduct business does not have to be in the home office to qualify for the deduction. For example, a consultant can conduct business offsite or in client offices and use, his or her home office to conduct the creative or management tasks for the business.

Exclusive Use

A specific area or other separate identifiable space used for conducting business activity. The space does not qualify for deduction if the space used is for both personal and business purposes. For example, if you are a consultant, you use your home office to manage business like preparing reports, invoices, or scheduling appointments, and your family uses that same space for family activities, the space is not exclusive for business and does not qualify for deduction.

Principal Use

Business activity conducted for one or more businesses in more than one location, including the home. To qualify for the deduction, the home must be the principal place of business. The home is used exclusively and regularly to conduct business activities such as management. There are no other locations where substantial management activities are conducted for the business.

Part-Year Use

Deductions do not qualify for the time the specific area or identifiable space is not used to conduct business activity. For example, if the home is used to conduct business for three months out of the year, you can only claim the allowable deduction for the three months.

Percentage

To determine the business percentage that qualifies for deduction, there are two methods used for figuring the percentage, according to IRS publication 587.

  1. Divide the area used to conduct business by the total area of the home.
  2. If the rooms in the home are approximately about the same size, divide the number of rooms used to conduct business by the total number of rooms in the home.

The information presented is for informational purposes only. Please consult a licensed tax professional to answer any specific questions regarding your taxes. Tax guides are available online for information that is more specific: http://www.irs.gov/publications/index.html

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