home office tax deduction

home office tax deduction

The ability to deduct a portion of the cost and upkeep of a home because of the use of some space for business purposes. Generally,

• You must use some portion of the home regularly and exclusively as your principal place of business, or a place where you meet with clients, or
¦ If using some structure separate from your home, you must merely use it in connection with your business.
¦ If you are an employee, the use of a portion of your home for business must be for the convenience of your employer, not for your own convenience.

• The space must be used exclusively for business, but it does not have to be separated by walls or other partitions from other space.

• The deduction will be calculated using a percentage determined by comparing the space used for business purposes with the total space in the home. For example, a 150-square-foot room in a 3,000-square-foot house, or 150/3,000, will equate to 5 percent.

• Direct expenses used for work, materials, or repairs only in the business portion of the home are fully deductible; indirect expenses used for the entire home, such as utilities, cleaning, insurance, and real estate taxes can be deducted in a pro rata amount as deter- mined from the percentage of space; unrelated expenses for nonbusiness parts of the home, such as painting other rooms, landscaping maintenance, or pool care are not deductible.

• Your use of home office business deductions cannot result in a business loss that will shelter other income.

For more information,see Publication 587,“ Business Use of Your Home,” available at the IRS Web site, www.irs.gov.