A question that comes up from my Realtor clients along with many other small business owners, is can I deduct my Home Office costs. This has become even more of an issue due to COVID as more and more of us work out of our homes. Today we’ll touch on when you can deduct your Home Office and what can be deducted.
When Can Your Home Office be Deducted?
There are two important criteria as to when your Home Office can be deducted.
- The space is used Regularly for business purposes.
- The space is used exclusively for business purposes.
Both of these criteria must be met in order to qualify for the deduction.
What Can I Deduct?
As a self-employed taxpayer with a qualifying Home Office, both Direct and Indirect expenses can be deducted. Direct expenses are those related to just that office. For example, if you painted your office, that would be a direct expense and it is deductible in full. In addition, there are Indirect expenses, those that impact the whole home, including the Home Office. To calculate the deduction, you would allocate those costs, typically by the square footage of the office to the total square footage of the home.
Some common Indirect expenses include:
- Mortgage Interest
- Real Estate Taxes
- Insurance
- Depreciation
- Utilities
- Repairs
The Home Office Deduction is limited to the net income from the business. However, disallowed deduction are carried forward. The IRS also permits the simplified Method based on $5 per square foot for up to 300 feet.
If you are a Realtor or other Small Business owner who needs professional help with your taxes, keeping your books properly, or dealing with any IRS issues, give me a call at (972) 821-1991 or send me an email at [email protected]. Learn more about us at https://jablonskyandassociates.com/real-estate/
