The Lowdown on 'Home Office' Deductions

Ah, "working from home."

Be it a euphemism for skipping work or truly the only place you're able to concentrate, most of us have some sort of home office. And that means the temptation to claim one of the most lucrative tax breaks around -- the home office deduction.

But be careful with this one: If you're eligible for it, by all means take it, but the home office deduction is a write-off with very specific criteria that the Internal Revenue Service actually keeps an eye on. (That's not to say that claiming a home office deduction exposes you to greater risk of an audit -- although it's often something the IRS inspects a little more closely.)

There's no single, pre-set "home office deduction." But if you operate a business from your home -- either full-time or on the side -- you might be eligible to deduct the portion of expenses, such as utilities, insurance, repairs and depreciation, that's attributable to your office space. (If you rent, rather than own, your home, you could deduct a portion of your rent.)

If you're employed elsewhere but have a home office, your office will have to meet the same criteria as those that use it for their own business, plus one other -- the home office must be required for the "convenience of his or her employer" in order to claim the deduction. Even so, it's only deductible as a miscellaneous itemized expense, which means only the amount that exceeds 2% of your adjusted gross income can be deducted.

So that generally leaves the home office deduction to the self-employed. If you report income from your business on a Schedule C, you'll need to fill out Form 8829, "Expenses for Business Use of Your Home," to write off your home office expenses. Provided, of course, you're eligible.