The Home Office Deduction

[Julio Gonzalez]

The tax deadline is just around the corner and you want to be sure you don’t miss out on the Home Office Deduction! While you may not see a huge tax deduction like you would with cost segregation, energy credits, bonus depreciation, etc. the small tax savings each year really does add up. You’re already paying bills such as your mortgage and utilities, so if you use your home as your office, why not claim the deduction and save some money?

Who is eligible to claim the home office deduction?

Small business owners that use Schedule C to report their income and expenses as well as partners receiving a K-1, farmers filing a Schedule F and employees who aren’t provided a place to work by their employers

Per IRS publication 587, To qualify to deduct expenses for business use of your home, you must use part of your home:

• Exclusively and regularly as your principal place of business;
• Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business;
• In the case of a separate structure which is not attached to your home, in connection with your trade or business;
• On a regular basis for certain storage use;
• For rental use (see Pub. 527); or
• As a daycare facility.

What are the allowable deductions?

• Renters’ insurance or homeowners’ insurance
• Homeowners' association (HOA) fees
• Rent (If you rent rather than own a home, instead of claiming mortgage and interest, you can claim rent as part of your home office deduction).
• Real estate taxes
• Mortgage interest
• Utilities (Including water, sewer, electricity, security system monitoring, trash service, propane, natural gas, heating oil)
• Repairs and maintenance (snow removal, tree removal, repairs to home and or appliances, HVAC maintenance, carpet cleaning, maid service to clean the house, the cost of an electrician to install light bulbs or light fixtures, the cost of a plumber to repair a sink or remove roots from the sewer line)

Converting from personal use to business use

Let’s say you convert a spare bedroom for business purposes, all of the items purchased to furnish the new business office are 100% deductible. Here’s a list of items that are frequently overlooked by business owners:

• Furniture for the office:
  • Chair
  • Desk
  • Bookcase
  • Printer table
  • Computer hutch
  • An easy chair or sofa to read technical documents or take a break
• Paint for the new office
• Cell phone
• Carpet or a rug for the office
• Internet
• Technology for the business used in the new office:
  • Monitors
  • Computer
  • Mouse
  • Keyboard
  • Scanner
  • Printer
  • Computer cables
  • Switches and routers
  • Office supplies
  • Peripheral equipment
  • Toner and ink cartridges
  • Paper
• Decorates, draperies, wall hangings used in the office
  • Framed artwork or diplomas
  • Objects of inspiration or art
  • Sound system if music makes you peaceful or inspires you

Are you currently using the home deduction for your real estate business? What other questions do you have regarding the home office deduction?