Tax Information on a Home Office Deduction
The U.S. Bureau of Labor Statistics says more than 20 million people regularly work from home as part of their primary job. If you're one of them, you might be eligible to deduct the cost of maintaining a home office on your income taxes. But tax law is fairly restrictive on what qualifies as a deductible home office and who can claim the deduction.
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Office
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The IRS says a home workspace is deductible as an office only if "regularly" and "exclusively" used for business. You might do all your work on your computer at the dining room table, for example, but if you also eat at that table, then you can't claim the space as a home office because the business use is not exclusive. Or, say you use a shed behind your house to make furniture for sale once or twice a year. Even if that's all you use the shed for, you can't claim a home office deduction because the use is not regular. The IRS makes a couple of exceptions. Home child-care providers can take a deduction for the space they use in their home for business even if the use is not exclusive. And the owner of a home-based business can claim the space in his home that he uses to store inventory, even if he uses the space for other things.
Self-Employed
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If you're self-employed, you can take the deduction only if the home office is your principal place of business or a place where you regularly meet with clients, customers, patients or others with whom you have a business relationship. You must fill out Form 8829 to determine the amount of your deduction and then report that amount on Schedule C when you file your income tax return. If you're claiming the home office deduction, you must use the long-form Schedule C, not the short form C-EZ.
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Employees
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If someone else employs you, you can claim a home office deduction only if you work at home for what the IRS calls "the convenience of your employer." In other words, if your employer requires you to work exclusively from home, you can claim the deduction. If you use the space at home because you're bringing home extra work, you don't qualify. Also, if your employer reimbursed you for the use of the space, you can't claim the deduction. To claim a home office deduction as an employee, you must itemize your deductions on Schedule A. Include the office deduction under "Unreimbursed Employee Expenses."
Calculation
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Generally, you figure the office deduction this way: Divide the square footage of your designated office space by the square footage of your house. This gives you the percentage of your home dedicated to business use. You can then deduct that percentage of your housing expenses, such as rent, casualty insurance, repairs and maintenance, and utilities. IRS Publication 587 goes into more detail on the calculation.
Warning
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According to Forbes Digital's Investopedia, a home office deduction can be a red flag for an IRS audit if the deduction is out of proportion to your reported earnings. For example, if you report $5,000 in self-employment income but claim $4,000 for a home office deduction, you may be getting a call from the IRS.
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