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Home Office Tax Deductions for Owner Operators

By March 2, 2015April 26th, 2019No Comments

Fotolia_62084411_XL - CopyThere are two requirements to claim a deduction for an office in your home.  The first requirement is that the area you claim must be used exclusively and regularly for conducting business.  Additionally, you must show that you use this space in your home either as your principle place of business or, if you have an additional business location, that you use the space substantially and regularly to conduct business.  If you are an employee and you want to claim business use of your home you must meet two additional tests.  The business use must be for the convenience of your employer, and you must not rent any part of your home to your employer and use the rented portion to perform services for that employer as an employee.

If you can get over the above hurdles and are eligible to claim a home office deduction, there are two options for computing your deduction.  The first option is the “regular” method.  This method is required for tax years in 2012 and prior.  In this method you must determine the actual expenses of the home office.  They may include mortgage interest, insurance, utilities, repairs, and depreciation.  Most deductions are based on the percentage of your home devoted to business use (you “prorate” most expenses).  The second method is the “simplified” option.  For taxable years starting on or after January 1, 2013 you can use this method.  In the simplified option you use a standard deduction of $5 per square foot of home used for business, up to 300 square feet.  With this method you continue to claim a full deduction for allowable home related itemized deductions (e.g. mortgage interest and real estate taxes) on Schedule A.  With the simplified method there is no depreciation deduction and therefore also no recapture of depreciation for the years this method has been used when you sell your home.  You may choose which method you want to use on a year to year basis.

The new simplified option for the home office deduction does make the calculation of the home office deduction much easier in most cases.  However, you need to be sure you can meet the requirements for this deduction, including using the space exclusively and regularly for business, which can be a very difficult hurdle.

To learn more, contact us.

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