How to Claim Tax Deduction for Home Office

Tax deductions for a home office will be dependent on the amount or percentage of the house converted into an office. It is important to measure if a part or the entire room is used for business. One can claim tax deductions based on some factors.

When a home is used for business, expenses can be deducted on the use of house space. People staying in rented places and homeowners can apply for home office deduction. Here is a brief about the options where tax can be deducted

Simplified Option:

Taxable years on or after January 1, 2013 can be computed using a simple method using the IRS Revenue Procedure 2013-13, January 15, 2013). This option helps reduce recordkeeping burden by a significant amount by allowing the specific taxpayer multiply the prescribed tax rate by the square footage space of office to determine actual expenses concurred.

Regular Method:

The regular method computation is required for tax years on and before 2012. Taxpayers can easily determine the expenses incurred by the home office. These expenses may include depreciation, utilities, insurance, mortgage interest, and repairs. When it comes to compute tax deductions using the regular method, tax cuts are calculated on the basis of the percentage of the house converted as an office space. Hence, the exact space has to be accurately measured on the basis of whether a part of the room or whole room is used to conduct business activities.

Claiming a Deduction - Requirements:

Irrespective of the options chosen for claiming tax deductions, the home has to comply by these requirements, in order to qualify for tax exemption:

  • Exclusive or Regular Use:

    The home should be used for conducting business activities or running an office on a regular basis. In case there is an extra room where the business is conducted, the specifications of that room can be applied for home office tax exemption.

  • Principal Place of Business:

    The home should be exclusively used for business. In some instances, when using another location to conduct business outside the home, apart from using the home substantially, then the place can be qualified for home office tax exemption.Meetings held with clients, customers, or patients at the home, as a part of the business activity, the expenses can be deducted for the part of the house used for official purpose. Expenses can also be deducted for barns, garages, or studio, depending on its use in the business, though it is not a part of the principal location for business.

Generally, home office space deductions depend on the area devoted for office activities. No matter, an entire room or a part of it is used for business, the portion of the home should be measured Additionally, if the person using his home as office is an employee, then the following parameters should be met in order to qualify for tax deduction:

  • The business setup at home should be for the employer’s convenience.
  • No part of the home should be rented out to the employer or used for activities by the employee.

These were some details about claiming tax deductions for home office.

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