Do you have space in your home that you use strictly for business? That area may qualify as a home office space that will allow you to take deductions on your tax return for expenses related to the business use of your home, Form 8829. There are specific conditions that the area must meet in order to qualify:
- The area is used regularly and exclusively for trade or business purposes as opposed to other profit-making activity.
- Exception: If the home is used as a day care facility for children, adults 65 and over, or individuals who are mentally or physically incapacitated.
- Exception: If the area is used for inventory or storage of produce (must be regular but not exclusive).
- The area is used for convenience of the employer.
- The area represents the primary place of business, or the area is the place of contact with clients or customers in the normal course of the trade or business or the area is a separate structure used in connection with the trade or business.
Once you have determined if your business space in your home qualifies, you are able to take deductions for expenses such as:
- Operating expenses
- Mortgage interest
- Real estate taxes
- Rent (with the exception of rent paid by the employer for the area in question)
- Casualty and theft losses
- Utility costs
- Cleaning and other services
- Homeowner’s insurance
- Security system costs
- Repair costs (labor and supplies)
The expenses listed above are categorized as either direct or indirect. Direct expenses are those that affect only the part of the home used for the trade or business, such as the cost of painting or furnishing an office. Direct costs are deductible in full. Indirect expenses involve the costs of maintaining the entire home of which the office is only a part. But, only the business use percentage of an indirect expense is deductible.