Tips for Claiming the Home Office Deduction
In order to claim the home office deduction it is important that you know the square footage of your entire home and your home office. Auditors do not usually make home visits. If you send them photos of your home office, that is usually all of the verification that they need.
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Percentage of your home – This method allows you to calculate your home office percentage. This allows you to use a fraction, which means that the top number is the square footage of your home office and the bottom number is the square footage of your entire home.
For example, if your home office covers 1000 square feet but your entire home is 4000 square feet your home office percentage would be 25%.
Simplified Square Footage – In 2013, the IRS made it easier to claim the home office deduction. This method allows you to use a prescribed rate that is multiplied by the allowed square footage. In 2014, the rate was $5 per square foot with a cap of 300 square feet. Keep in mind, all of the space you claim must be used for business only. For example, if you have 150 square feet in your home office, your deduction would be $750.
Thanks to your home office, you also qualify to deduct a percentage of other expenses such as utilities, rent, homeowners insurance, property taxes and mortgage interest. Homeowners are able to depreciate the business portion for tax purchases too. However, you are not able to deduct any services that happen outside of the home such as lawn care services.
Additional Things to Keep in Mind
- You cannot deduct more than your business profits each year.
- You have to file Form 8829 with your 1040.
- If you depreciate your home with the home office deduction and profit when you sale your home, you are responsible for paying capital gains tax of no more than 25% on the gains that came from the home office deduction.
Things to Keep in Case of an Audit
In the event that you are audited and you have filed the home office deduction, it is important to make sure you have good records. Some of the things you should keep include:
- Copies of Form 1098
- Property tax bills
- Utility and insurance bills
- Your lease
- Receipts for any of the other expenses you deduct.
When you file your taxes with H&R Block online you don’t need to know which tax forms to fill out. We’ll ask you simple questions about your life and put your answers on all the appropriate tax forms.