Is My Home Office Tax Deductible?

Is My Home Office Tax Deductible?

Taryn Williford
Oct 1, 2010

Wondering if you're missing out on a tax break for your work-at-home space? The best answer we can give you right now is... maybe. Before you decide to write off your mortgage and max out your credit cards in anticipation of a huge refund check, you'll need to make sure that your space qualifies as a "home office" according to Uncle Sam.

We're not experts and this isn't proper financial advice. For a sure answer on whether or not your home office is tax-deductible, you should definitely talk to a tax professional.

But here's a few clues that might help you figure out if your office can offer you a break:

  • You make money. To be deductible, your home office needs to be used exclusively for a profitable business. And you're only allowed to deduct an amount equal or lesser than your net profits.
  • You're only doing business in there. Remember how we said "exclusively"? Well, that's the biggest thing to consider. The IRS requires that you to use your home office "exclusively and regularly" as the primary place you do business or meet with clients. If your home office doubles as a guest room, it doesn't make the cut.
  • It's your main office. Even if you're self-employed and use your behind-closed-doors office space for your budding business, it might not qualify if it's not your main HQ. You must take care of your administrative activities, like billing clients, from your home office and not another fixed location.
  • It's separated from the rest of the house. In order to deduct the cost of rent or your mortgage (and in order to verify that "exclusivity" thing from before), your home office needs to have a clear separation from the rest of the house. The amount of rent or utilities that you can deduct is equal to the percentage of your home you use for business. A 200-square-foot home office in a 1000-square-foot home would allow you to deduct 20 percent of certain home expenses.

(Images: Flickr user 427 under license from Creative Commons, Flickr user Fernanda Mancini under license from Creative Commons)

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