What Is a Home Office Deduction Tax Break Credit?
If you work from home, you may qualify for a home office deduction when you file your federal taxes. The requirements for this deduction can be pretty strict, however, so it’s important to know what they are before you claim a deduction that you may not be eligible for. Here are the three main ways to know if and, if so, how much of the cost of a home office you can deduct from your taxable income.
- Principal Place of Business
In order to qualify for this deduction, your home office must be the main place you conduct your business. It doesn’t have to be the sole location, though. If you meet clients elsewhere but do all your administrative work in a designated area of your home, you probably qualify for the tax deduction.
- Exclusive Use
In order to get the tax break credit, the area that your home office takes up must be exclusively used for your business. That means that you can’t use the kitchen table for a couple hours a day to work and then serve dinner on it later. The space has to be specifically set aside for tasks associated with your work. There are a few exceptions to the exclusive use test:
- In-home day care
- In-home elderly care
- Inventory storage
- Usage Calculations
The simpler method of calculating your deduction for your home office is to measure the square footage of the designated space. Then take the prescribed rate (in 2017, for example, it was $5) and multiply it by the square footage of the space. A more precise method is to take the total square footage of your home and calculate the percentage of space the home office uses. Then you can deduct that percentage of the following expenses:
- Utilities
- Property tax (the portion not deducted as a home deduction)
- Homeowners insurance
- General maintenance costs
- HOA fees
- Security costs
GovDocFiling can help you determine your tax ID format and walk you through other forms to get your business up and running. Fill out the online EIN number application to get started.