-
Step 1
Set up a portion of your home so that it will be used exclusively for your business. The section of your home does not have to be partitioned or walled off from the remainder of the house, but it cannot be used for other everyday purposes. The only exceptions are for home day care businesses or for storage of business samples or product inventory.
-
Step 2
Use the area in your home regularly for business. This area of your home must be the principal place in which you conduct activity for your business. If you have other business locations such as an office that you use and occasionally use your home office to conduct business, you will not qualify for a tax deduction.
If you establish a separate structure such as a barn, studio, garage, or shed for your business, it does not need to be the regular place of business in order to be eligible for a tax deduction. -
Step 3
Calculate the percentage of the area set aside for your business. Measure the room size, or if it is a portion of a room, then measure the area of the portion. Measure all the living space in your house. Divide the area you are using for your business by the total living space of your house. This is the percentage you will use to calculate your tax deductions.
-
Step 4
Take the percentage you calculated in step 3 and multiply by the amount of deductible mortgage interest and real estate taxes. Also, add up the totals for general maintenance and utilities such as gas, electric, propane and insurance. Multiply this amount by the percentage calculated in step 3. These totals will be needed when you complete your taxes.
If you need to do repairs specifically on the area set up for your business in your home, keep track of all these expenses. The total amount may be able to be deducted at 100% depending on your total income and if you have hit other tax deduction limits.
