There are several misconceptions about home office deductions. One of which is that if you take the home office deduction, you have a greater chance of getting audit. Not necessary true; but, the there is a chance you can be audited.
You must use your home exclusively and regularly to conduct business to qualify for the home office deduction. Your home must be your principal place of business where you meet your customers and clients.
The IRS rules and regulations made it simpler a couple of years ago to deduct a home office deduction under a simplified method. The home office simplified method is $5 a square foot multiplied by the square footage you are using in your home for an office up to a maximum of 300 square feet which is a $1,500 home office deduction.
Then there’s the non-simplified method. Under the non-simplified method, you need to know the total footage of you home, the amount of square footage you are using for your home office. This will give you a percentage of the amount of space you are using for a home office. Ex 300/4000 where 300 is the amount of space you are using for an office and 4,000 is the total square footage of your home. In this example, you are using 7.5% of your home as an office. This 7.5% of your home will be depreciated resulting in a possible capital gain if you sell your home in the future.
Under this method and example, you can deduct 7.5% home owner’s insurance, property taxes, mortgage interest, utilities, garbage, cable, telephone, gas, etc. or the percentage of the home that you are using for an office. For example, if you total expenses for those home expenses were $10,000 then your home office tax deduction would be $750.
If you are an employee, your business use of your home be at the convenience of your employer. You must not rent any part of the your home to your employer and rent the portion to your employer to perform services as an employee.
The link to the IRS Publication 587 can be found here
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