Are you self-employed or a partner in a business? Do you use part of your home for your trade or business? If so, you may be eligible to deduct certain expenses related to the business use of your home. This can be a significant way to reduce your tax liability, but it’s crucial to understand the rules and requirements.
Understanding the Basics
The IRS allows for the deduction of expenses related to the business use of your home under certain conditions. To qualify:
- You must use part of your home exclusively and regularly as your principal place of business.
- The space should be used exclusively and regularly for meeting clients, patients, or customers.
- A separate structure not attached to your home can be used exclusively and regularly for your business.
- If your home is the sole fixed location of your trade or business, you can use it regularly for storage of inventory or product samples.
- The space can be used for rental purposes.
- Your home can be used as a daycare facility.
- The keyword here is ‘exclusive’. If you use a part of your home for both personal and business purposes, you cannot deduct business expenses for that part.
Deductible Expenses
Deductible expenses for business use of your home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs. However, you generally cannot deduct expenses for the parts of your home not used for business, such as lawn care or painting a room not used for business.
The amount that you can deduct is based on the percentage of your home used solely for business. For instance, if your home is 1,100 sq. ft and you use a 200 sq. ft office solely for your business, you could consider 18% (200/1100) of your qualified expenses as business use of the home expenses.
A Real-Life Example
Let’s take a look at Eevee Tailor & Alteration, a tailoring business that perfectly exemplifies business use of the home. Upon arrival, you’re greeted by a custom-made sign bearing the name ‘Eevee’. Inside, there are three sectioned-off dressing rooms for customers to try on clothes that need tailoring. There’s a sign that shows which form of payment is accepted. The space is used solely for the tailoring business, meeting the exclusive use requirement and making it eligible for home office deductions.
Finally
If you’re using a part of your home for business, don’t miss out on these valuable deductions. Make sure you meet the ‘exclusive use’ requirement and keep accurate records of all your expenses. As always, consult with a tax professional to ensure you’re maximizing your deductions while staying within IRS guidelines. If you have any questions, feel free to contact me via phone or email.
JoAnna Laiscell, January 30, 2024
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