What Home Office Expenses Are Tax Deductible — and Which Are Not?
For many taxpayers who work from home, understanding which home office expenses are tax deductible can result in significant savings. However, the IRS has strict criteria that determine what can and cannot be deducted. Below is a comprehensive guide based on current IRS guidelines.
IRS Criteria for Deductible Home Office Expenses
According to the IRS, to qualify for a home office deduction, your home office must meet two primary conditions:
- Regular and Exclusive Use: The space must be used regularly and exclusively for conducting business. Occasional or mixed personal use disqualifies the expense.
- Principal Place of Business: The home office must be your principal place of business. It can also qualify if it is used to meet clients or customers in the normal course of business, or if it is a separate structure not attached to your home but used exclusively for business.
Deductible Home Office Expenses
If the above conditions are met, the following expenses may be deductible:
- Direct Expenses: Costs that directly relate to the home office (e.g., painting or repairs in the office).
- Indirect Expenses: Expenses for keeping up and running the entire home that are partially deductible (e.g., mortgage interest, rent, utilities, homeowner’s insurance, security systems, and general home repairs).
- Depreciation: A portion of your home’s depreciation may be deductible if you own your home.
- Internet and Phone Services: The business portion of internet service and a second dedicated business phone line.
- Office Supplies: Items such as paper, pens, computers, printers, and software used exclusively for business.
- Furniture and Equipment: Desks, chairs, filing cabinets, and business-specific equipment, if used exclusively for business purposes.
Non-Deductible Home Office Expenses
- Personal Expenses: Any cost that pertains to personal use of the home, even if occasionally used for business.
- Home Improvements That Increase Property Value: While these can increase the value of your home, they generally do not qualify unless they are directly related to the home office space.
- First Phone Line: The cost of the first residential telephone line is not deductible, even if used for business.
- Commuting Costs: Travel from your home office to another work location is not considered deductible commuting.
Methods for Calculating Home Office Deductions
- Simplified Method: Deduct $5 per square foot of the home office space, up to 300 square feet (maximum $1,500).
- Regular Method: Calculate the actual expenses and allocate based on the percentage of the home used for business.
Conclusion
Understanding what is and isn’t deductible according to IRS guidelines can help taxpayers maximize legitimate deductions and avoid errors. For more information or to ensure compliance with current tax laws, consult IRS Publication 587 or speak with a qualified tax professional.