NEW YORK ( IRS.com) -- There are many expenses associated with homeownership, so it's nice to know that there are tax breaks to help ease the financial burden. The Home Office Tax Deduction is designed for individuals who use a portion of their home for business activities. As long as you meet the IRS' requirements, the home office deduction allows you to deduct certain expenses that the average homeowner cannot. The home office tax deduction can be used by taxpayers who are employees (e.g., for a company) or who are self-employed. If you are eligible to claim this tax deduction but you moved partway through the year, you can only deduct home office expenses for the portion of the year during which you used your home office. If you also work at another location (other than your home), you should be careful when claiming certain expenses -- for example, administrative duties (i.e., bookkeeping) may be considered "qualified expenses" under this tax deduction, but your home office must be the only place where you can carry out these tasks. If you work from your home part-time, you will have to be able to prove that you work in your home office enough to pass the "regular use test." The details surrounding this rule are a bit vague, but generally require consistent use of your home office. On Page 3 of IRS Publication 587 (Business Use of Your Home), it says:
"To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Incidental or occasional business use is not regular use. You must consider all facts and circumstances in determining whether your use is on a regular basis."Understanding the home office tax deduction Claiming the home office tax deduction is a great tax strategy that allows you to deduct the costs associated with your home office, thus lowering your taxable income and your overall tax bill. Remember that tax deductions lower your taxable income and they are equal to the percentage of your marginal tax bracket. For example, if you are in the 25% tax bracket, a $1,000 deduction saves you $250 in tax (0.25 x $1,000 = $250). There are two main types of tax deductions: the standard deduction and itemized deductions. A taxpayer may use one or the other, but not both. It is typically recommended that you itemize your deductions if their total is greater than the standard deduction.
According to the IRS, you must meet three main requirements to be eligible for the home office tax deduction. You must use a portion of your home exclusively and regularly:
- As your principal place of business.
- As a place to meet or deal with clients/customers in the normal course of your business.
- In any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.
- For certain storage use on a regular basis.
- For rental use.
- To operate a daycare facility.
To be eligible as an employee, you must also pass the following tests:
- Using part of your home to conduct business must be for the convenience of your employer.
- You cannot rent any portion of your home to your employer and use that rented space to carry out work duties for that employer.
- 1. Home office only -- If an expense is related only to your home office, the entire cost is deductible as a "direct" home office expense.
- 2. Whole house -- If an expense affects the entire house, a percentage of it will be deductible as an "indirect" home office expense.
- 3. Non-business -- If an expense is associated solely with the non-business portion of your home, it is not deductible as a home office expense.