Home Office Deduction Calculator

Home Office Deduction Calculator

If homeowners and renters carry on business or profession from a part of the home, the expense incurred on the said office -directly or indirectly- are allowed to be deducted from gross income to compute your taxable business income. All persons carrying small business should know how to deduct the expense of carrying out office from a portion of his/her home.

Two methods for home office deduction

There are two options for computing the amount of deduction that can be claimed while computing business income being carried out from a portion of your home. These are :

  • Simplified method
  • General Method

Home Office Deduction Calculator

What is simplified home office deduction method ?

IRS Revenue Procedure 2013-13, January 15, 2013, initiated this method of the allowable deduction for expenditure on the home office. Under this simplified option, you multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses. For tax year, the prescribed rate is $5 per sq ft area of the office and maximum area of home office allowable is 300 sqft. Refer instruction for form 8829

What is Regular Method ?

Under the regular method, you must determine the actual expenses of your home office. What are the home expenses that count toward the home office deduction? IRS Publication 587 provides that allowable office-in-home expenses are of three kinds:

  1. Direct expenses related to the office allowed 100%.Direct expenses can be deducted in whole; indirect expenses are deducted proportionately, according to the office square footage compared to the square footage of the total house; unrelated expenses are not deductible.
  2. Indirect expenses apply to the entire home ,but allowed proportionately.Indirect expenses might include the following:
  • Mortgage interest
  • Qualified mortgage insurance premiums
  • Property taxes
  • Depreciation
  • Rent (if you do not own the home)
  • Utilities and services (like trash removal and cleaning)
  • Repairs (unless the repair involves only the office, then it is direct)
  • Security system
  • Casualty losses

Depreciation on home office

You can also get a portion of depreciation related to the house in proportion to the area. In Form 8829, Part III provides the way to figure your depreciation deduction. For more, click home office depreciation calculator

Requirements to Claim the Home Office Deduction

Regardless of the method chosen, there are two basic requirements for your home to qualify as a deduction:

  1. You must regularly use part of your home exclusively for conducting business.
  2. You must show that you use your home as your principal place of business.

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