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.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
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