Home Office Deductions


Dear M & M:

Is there a place I can go to find out about deductions you are entitled to because you have your business office in your home?

– Jake

Dear Jake:

It is officially titled home office deduction and can be found in publication 587 of the IRS tax codes titled “business use of your home”. This is the following information found on the IRS web site under publication 587. Generally one of the first things you must pass is the exclusivity test. To qualify you must use part of your home exclusively to conduct your business. Meaning, if you use your den to do your bookkeeping, pay bills and answer business phone calls and your family uses the den to watch TV, play video games on the same computer you pay bills from the den is not being exclusively for your business therefore not deductible. However, if you use that same den to store inventory product samples you might be able to use the den. In this case storing inventory does not have to meet the exclusivity test as long as the space used to store these samples or inventory is distinctively separate and are products that you sell in the normal course of your business. There are other exceptions to consider. Do you regularly store these samples or inventory in this designated space in the den? Other rules to consider, is this your principle place of business? Do you have another location that you would normally do these activities? Maybe you have a warehouse downtown that you store 90 per cent of you other samples or inventory. If so you might not qualify. Another consideration if you do qualify for home deductions for your business is how much of the home expenses can I deduct? Generally if you measure the total square footage of your home office and divide it by the total square footage of your total house it will give you a percentage of what amount of the expenses you can deduct. (Example:  total square footage of the room used for business 100 sq. ft. size of the whole house 1000 sq. ft. 100/1000 = .10 or 10 per cent.) This leads you to what the per cent age of expenses you can deduct.  Generally the rule of thumb is you can deduct business expenses that are generated from the use of the business. In this case 10 per cent of deductible expenses are allowable as a business expense. An example:  the cost of repairs to your furnace assuming you have determined from the above example that 10 per cent of your home is the space you use to conduct business in. Therefore 10 per cent of a $200 furnace repair bill would be $20. Generally the utilities would follow the same 10 per cent rule or per cent age of use formula size of room/total sq. ft. = per cent age of the allowable expense deduction rate. Beginning in tax year 2013 (returns filed in 2014), taxpayers may use a simplified option when figuring the deduction for business use of their home.

Note: This simplified option does not change the criteria for who may claim a home office deduction. It merely simplifies the calculation and recordkeeping requirements of the allowable deduction.

Highlights of the simplified option; A standard deduction of $5 per square foot of home used for business (maximum 300 square feet). Allowable home-related itemized deductions claimed in full on Schedule A. (For example: Mortgage interest, real estate taxes). No home depreciation deduction or later recapture of depreciation for the years the simplified option is used.- IRS  As you can see always contact a competent CPA, tax advisor or call the IRS when trying to determine what expenses you are eligible for when it comes to using your home as a business.  Rules regarding the deductible expenses of your home office sometimes can be complicated and your circumstances or use of your home should be discussed with a qualified person that understands the tax code found in publication 587 “Home Office Deductions”.


To ask your questions: Call the Small Business Development Center(SBDC) at Cochise College (520)-515-5478 or email schmittm@cochise.edu or contact the Sierra Vista Economic Development Foundation (EDF) at 520-458-6948 or email  hollism@svedf.org .


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