Business matters Home, Sweet Home (Office Deduction

Home, Sweet Home (Office Deduction)

By Carol Gordon, CPA

People don’t always understand what’s available and especially that selling your house generally results in paying taxes on the depreciation you’ve claimed over the years.

Many of you use a home office as the home base for your business. You make appointments, pay bills and make bank deposits at home. The IRS offers qualified taxpayers the opportunity to deduct the expenses of maintaining a home office from your taxable income. I’ve included some very basic information on this topic here. Please review IRS Publication 587 and discuss this option with your financial advisor in order to decide if taking the deduction would be beneficial to your business.

Here are six important things to know about claiming the home office deduction.

1. Generally, in order to claim a business deduction for your home, you must use part of your home “exclusively and regularly”: • As your principal place of business, or As a place to meet or deal with clients in the normal course of your business, or in the case of a separate structure which is not attached to your home, it must be used in connection with your trade or business.

2. Generally, the amount you can deduct depends on the percentage of your home that you use for business. A common method of allocating percentage is based on square footage but any reasonable method is usually acceptable. Your deduction may be limited if the gross income from your business is less than your total business expenses.

3. If you sell your house, the depreciation taken for your home office will be subject to taxation.

4. If you are self-employed and file using Schedule F, use the worksheet in Publication 587 to calculate the deduction and report the deduction on

Schedule F. If you use Schedule C, use Form 8829, Expenses for Business Use of your Home, to calculate the deduction and report the deduction on Schedule C.

5. The home office deduction is also available to renters.

6. If you are an employee and work from home, you are no longer eligible to claim the home office deduction.

For more information, see IRS Publication 587, Business Use of your Home.

About the author: Carol Gordon is a CPA with an MBA from Boston College and the owner of Carol Gordon, CPA, which provides consulting services to equine-based businesses. You can contact her at cgordoncpa@gmail.com. If you have any questions that you’d like covered here, please email her with your suggestions.