If you have an office at home, it can mean a pretty nice deduction, but the rules are very strict, and the IRS tends to scrutinize home office claims. To qualify for a deduction, the office must be:
- In a separate room or area of your house — it can also be part of a room, but the area would still have to be used exclusively and regularly for business. In other words, not your dining room table that you also serve family meals on.
- Your principle place of business.
If you are self-employed and use part of your home for storage of inventory or product samples, you can deduct expenses for the business use of your home without meeting the exclusive use text. However, you must meet the following to qualify:
- You sell products at wholesale or retail as your trade or business
- You keep the inventory or product samples in your home for use in your trade or business
- Your home is the only fixed location of your trade or business
- You use the storage space on a regular basis
- The space you use is separately identifiable space suitable for storage
If you do business in a separate room, but use your computer for personal purposes, home office deduction is not likely. If you sit on your couch, your deck, and your bed to work, it would be very hard to say you used any one place in your home exclusively for business.
An example for an office as part of a room could be that if you have a study with a desk, a couch, and a TV in a room, you could count the portion of the room that has the desk as a home office. You can still do that even if there’s no personal use of the desk and even if you make personal use of the couch and the TV.
If you do qualify for the home office deduction you are able to deduct a percentage of your home expenses, based on the square footage of the office as compared to the size of your entire home. So you can deduct a portion of your home’s expenses including depreciation, rent, insurance, utilities, maintenance and general repairs based on the business use of that part of your home.
Coming soon! Starting in tax year 2013, if you meet the regular and exclusive tests to claim a home office deduction, you will be eligible for a “safe harbor” deduction—a simplified way to figure your deduction. The deduction is $5 per square foot to a maximum of 300 square feet; thus the maximum deduction is $1,500. The safe harbor method will allow you to eliminate complicated record keeping and forms for the deduction.