Claiming the Tax Deduction for Business Use of Home

If you use a portion of your home exclusively and regularly for your business you may be able to take a deduction for expenses related to that business use. Some common deductible expenses are mortgage interest, utilities, home insurance, property taxes and depreciation.

Calculating the business use portion

The deduction is calculated based on the business portion of your home expenses. There are two common methods for calculating the business portion of your home.

  • The preferred method is to divide the square footage of the exclusively business use area by the total square footage of your home. As an example, if your home office is in a room that is 100 sq ft and your home is a total of 1,000 sq ft, your business use portion would be 10%.
  • The second method is to divide the number of rooms that are exclusively business use by the total number of rooms in your home. This method should only be used if the rooms in your home are similar in size.

Helpful Tips

  • Your deduction may be limited to the gross business income less total business expenses.
  • Keep support for all of your deduction claims, including utility bills, canceled checks, receipts, and any other support that might be available.
  • Non-deductible personal living expenses can not be deducted as business expenses.
  • If you sell your home, be sure to contact your tax advisor. Some of the gain from the sale of your home may be taxed for the depreciation claimed or was available to be claimed.
  • Amounts deducted against business income will reduce the amount deductible on your Schedule A individual itemized deductions.

(Taken from business.gov post by NicoleD on 11/20/2009)

Should you have questions regarding this post or any other tax needs, contact us at Schutte & Hilgendorf, PLLC, Prescott accountants serving the greater Yavapai County with tax, accounting, auditing, and QuickBooks consulting expertise.

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