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What is the Home Office Deduction?

The home office deduction allows taxpayers with an office in their home to deduct expenses related to said office. A home office can be in an owned home or a rented one. The term home includes an apartment, a house, a boathouse, etc.

The deduction is limited to profitable businesses, unlike Maurice Dreicer’s business which was ruled to be hobby loss business. The three other requirements for the deduction are that the office is regularly used, it is exclusively used as an office and it is the principal place of the business owner’s business.


How do you Calculate the Deduction?

There are two methods, one is the actual expenses method. The other is the simplified method which was introduced by the IRS in 2013.

Using the actual expenses method, Form 8829 accounts for indirect expenses related to a home office. For example, some indirect expenses are rent, utilities, repairs, cleaning, etc. These expenses are then deductible based on the percentage of the home that is used as an office.

Using the simplified method, a taxpayer doesn’t have to deduct actual expenses. Instead, the square footage of the home office is multiplied by a predetermined rate which is then deductible.


Fun Fact

Before 1999, the home office deduction required business owners to actually meet their clients at their home office.


Links

Learn more about the home office deduction from Robert Green.

Additionally, learn more about the different ways to deduct a home office from Nerd Wallet.

Lastly, take a look at our services!