Home Office Deduction Calculator 2021

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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 have the option to choose either the simplified method or the regular method for any taxable year on your tax return. But once a method for a taxable year is selected, you cannot later change to the other method for that same year.

Home Office Deduction Calculator

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 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 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.

How to prove home as your principal place of business?

In order 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 that is part and parcel of your business or profession need not be your principal place of business.

Proof of using certain space for office

Following can establish your claim of home office deduction.

  • Your business letter head /visiting card mention certain portion of your home as office address.
  • You only debit the expense proportionate to the area used out of total home space
  • Bills vouchers of the office furniture , eqipments should be preserved and the installation of those things must be inside the area you claimed as office.

By Prashant Thakur

Prashant Thakur is a tax advisor . He has written two books on tax laws of India. He regularly writes on his paid-only website http://taxworry.com. He is learning about the Internal Revenue Code of USA as many of clients and readers are of India origin and also are tax resident of USA . So . solving their tax issues require reference to IRC of USA.