The home office deduction calculator is an easy way to compute the deduction you can claim for carrying your business or profession from one corner of your home. It is a fact that the IRS allows expenses incurred on the portion of home and equipment or infrastructure necessary to carry out business to be deducted from the gross income of the homeowner or renter.
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
You can choose either the simplified or the regular method for any taxable year on your tax return. But once a method for a taxable year is selected, you cannot change to another method later.
Home Office Deduction Calculator
What is the 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 instead of determining actual expenses. For the tax year, the prescribed rate is $5 per sq ft area of the office, and the maximum area of home office allowable is 300 sqft. Refer to instructions for form 8829
What is the 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:
- Direct expenses related to the office are allowed 100%. Direct costs 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.
- Indirect expenses apply to the entire home but are allowed proportionately. Indirect costs might include the following:
- Mortgage interest
- Qualified mortgage insurance premiums
- Property taxes
- 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 the 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:
- You must regularly use part of your home exclusively for conducting business.
- You must show that you use your home as your principal place of business.
How to prove your home as your principal place of business?
To qualify for a home office deduction, you must prove that you use your home as your principal place of business. But IRS also allows home office deductions on separate structures like a – studio, garage, or barn- if you prove that they are used exclusively and regularly for your business. Such a structure part and parcel of your business or profession need not be your principal place of business.
Proof of using specific space for office
The following can establish your claim of home office deduction.
- Your business letterhead/visiting card mentions a particular portion of your home as an office address.
- You only debit the expense proportionate to the area used out of the total home space.
- Bills vouchers for the office furniture and equipment should be preserved, and those things must be installed inside the area you claimed as the office.
How do you claim the home office deduction?
The procedure to claim home office deduction depends on the method chosen for computation of deduction i.e., regular or simplified.
- A simplified method to determine your deduction amount: Complete Form 1040, Schedule C, and mention your deduction amount on Line 30.
- Regular method: Complete Form 8829 (Expenses For Business Use Of Home) and write a line for each home expense. Refer to the IRS instructions for the form. Once form 8829 is complete, fill in Line 30 of Schedule C of Form 1040 with the deduction amount.
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