# What Are Home Office Expense Deductions?

## Learn What Qualifies as Home Office Space and How to Calculate a Deduction

The  can save you some significant money at tax time if you're self-employed and work out of your home, but it's not for the faint of heart. In fact, it's complicated enough that the Internal Revenue Service has dedicated a 32-page book  to explaining its intricacies.

### The Easy Way to Calculate Your Home Office Expense Deduction

You have two options for calculating the amount of your deduction. One is far easier than the other, but you might shortchange yourself if you use it. The IRS offers a which may be appropriate if your home office is on the small side, up to 300 square feet. Multiply the area by \$5 per square foot. There's your deduction. Obviously, the smaller your space, the less of a deduction you can receive. The two criteria above still apply - the area must be used regularly and exclusively and it must be your principle place of business.

### Claiming the Home Office Expense Deduction the Old Way

The simplified option has been available since 2013. Before that, home office entrepreneurs had to go through some complicated calculations to arrive at their deductions, and you might still want to do this because it could ultimately save you more money.

The more complicated option uses IRS  to calculate the home office deduction. This requires that you determine the percentage of the total area of your home, then the area that you use exclusively for business purposes. If the total is 2,500 square feet, and if your work area is 250 square feet, you're entitled to deduct 10 percent of qualifying home expenses because they're dedicated to your business. Divide the total usable area of your home by your work area to arrive at your percentage.

You can take a percentage of allowable home-related expenses, based on the percentage of your home used for business, including these expenses:

• Casualty losses (with limits)
• Mortgage interest
• Real estate taxes
• Security system
• Homeowner's insurance
• Rent, if you don't own your home
• Utilities

You can't include expenses for the home that have nothing to do with your business. For example, if you add a patio on the other side of your home, you can't include that in your deduction calculation.

If your total allowable home expenses are \$20,000 a year and you're entitled to a 10 percent deduction because you use 10% of your home for business purposes. Your deduction would be \$2,000, meaning that you have just saved \$2,000 by claiming a home office expense deduction -- most likely more than if you had opted for the simplified calculation.

### How to Include a Home Office Deduction on Your Tax Return

If you're  and you pay taxes as a sole proprietor or single-member LLC, you would then report this deduction on Line 30 of with your tax return. For other business legal types, see this article about for more information on how and where to enter this deduction in your business tax return. If you are an employee, you can enter this deduction on Schedule A, Itemized Deductions.

### Not All Home Businesses Are Treated the Same

Not all home businesses are treated exactly the same. Special rules apply to day care operations and if you use your home space to store inventory. Consult with an accountant or tax attorney if this is the case.

Back to

Disclaimer

This article presents general information; I am not a or tax preparation specialist. Refer to IRS publications and refer questions to your tax consultant.