- Predominantly , and on a regular basis, as your main business location
- As the location where you meet or deal with patients, clients or customers in the normal course of your trade or business on a regular basis
- As the primary place of storage for inventory or business equipment
- For rental use, or
- As a childcare or other daycare facility.
To calculate the business percentage of your home eligible for a tax deduction, you must compare the size of the area used for business to your whole house.
The deduction limit for the business use of your home is dependent on the gross income of the business primarily used in your home. See Publication 587 for more details.
In most cases, you cannot deduct expenses that are related to tax-exempt allowances.
General tax deductable home expenses include:
- Real estate taxes.
- Qualified mortgage insurance premiums.
- Deductible mortgage interest.
- Casualty losses.
Home business deductions:
- Security system
- Utilities and services
If you purchase equipment, such as a computer, for personal use, that equipment must past the more-than-50% test in order to be eligible for a deduction. You must use the equipment at least 50% of the time for business.
You may deduct property that meets the following two requirements:
- Is used for the convenience of your employer and
- Is a required condition of your employment.
If you use listed property in your business, you must file Form 4562 to claim a depreciation or section 179 deduction.
There are specific rules for deducting the operating expenses of a daycare facility out of your home. For further information please refer to Publication 587.
Note: you cannot take any depreciation or section 179 deduction for listed property without adequate records.
Things to be aware of if you claim deductions for the business use of your home:
You may exclude up to $250,000 in gain ($500,000 for certain married couples filing jointly) if you sell or exchange your home and meet the ownership and use tests. If you sell or exchange your home, you cannot exclude the part of your home used for business.
Written by Angela Stringfellow.