What is the Home Owner Tax Deduction?
The home owner tax deduction is really the “Home Office Tax Deduction”. These are important times, because everyone’s working from home – or so it seems. It only makes sense that you know if you’ll benefit form it. So here’s everything you need to know about home office tax deductions.
Is the Tax Deduction Only for Home Owners?
If you’re self-employed, congratulations because this home office deduction is for you. Once upon anyone could claim this as an itemized deduction if you worked from home, but that was eliminated a years ago.
To be eligible to claim this deduction as a self-employed person, you must have a home office or work space the is used exclusively for your business. This means you cannot use that portion of your home for any other reason.
In addition, the home space must be your primary place of business. That means you do not have access to an office or space outside of your home. This includes when you’re forced to work from home because of circumstances out of your control. Business owners who were forced to work from home due to the pandemic is a perfect example.
What is an Eligible Home Office Tax Deduction
Technically, you don’t have to be a home owner to claim the deduction. According to the IRS a “home” includes a house, apartment, condominium, mobile home, boat or similar property. It also included structures not attached to the property like a garage, shed, or greenhouse.
Due to the use, you can write-off portions of your utilities, mortgage interest, repairs, and even rent. However, to reduce your chance of being audited you need to know what expense category each belongs under.
The E-book the Tax Index was created for this purpose. It has a list of hundreds of eligible business expenses and the tax category listed to claim it properly.
How is Home Office Tax Deduction Calculated
There are two way to calculate the portion of your expense that’s eligible. You can do the simplified option or the regular method.
Simplified Method Calculation
The simplified option is when you get $5 a square foot for business use of the home, to a maximum of 300 square feet. That would be a $1500 deduction if your space was that big.
Regular Method Calculation
The regular method is when you claim the portion of the expense based on the percentage of the home devoted to business use. The expense amount would be the Indirect expense. The portion to the business would be the Direct expense.
For example. Your electricity bill for the month was $200. If your home was 1000 square feet and the portion of the home used for business was 10 square feet, the eligible business deduction would be 1% (10/1000 = 0.01 x 100 = 1%).
Indirect Expense Amount: $200
Direct Expense Amount: $2
The eligible deduction for your electricity bill would be $2 based on the regular method
After you total all your expenses under the regular method, you can determine if simplified would work out to a bigger amount.
How to Claim the Home Office deduction
To claim the deduction, you must complete form 8829 which is carried to your Schedule C of your Income Tax Return (Read: What taxes you must file when self-employed).
Visit the IRS for more information on home office tax deductions.
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