This is part of the Home Office series.
Resources:
Why YOU Should Care:
If you qualify for the home office deduction, you may be able to deduct the following expenses for the portion of your home used for business:
- Mortgage Interest
- Insurance
- Utilities
- Rent
- Depreciation
Requirements:
Part of your home must be used regularly and exclusively as a principal place of business.
What is regular? What is exclusive?
Your home office space must be used “regularly” to conduct your trade or business. This qualification is based on your unique facts and circumstances. If you occasionally bring paperwork home from the office and complete it on your kitchen table, this is not a regular use of home office space. If, however, you spend time every day at a predetermined space in your home where you run your online business, your home office gets regular use.
To meet the “exclusive use” test, you must set aside a specific area of your home to be used only for your trade or business. This does not have to be a separate room. It must, however, be “separately identifiable” – a desk area in your living room may qualify if it meets both the regular and exclusive use tests.
What is Business?
In order to qualify for this deduction, you must use the space in a profit-seeking venture. Do you have a dedicated sewing area because you love to sew? That’s a hobby and the deduction does not apply. Do you have a dedicated sewing area because you make aprons to sell online? That’s a business and the deduction may apply.
What is a Principal Place of Business?
To qualify for the deduction, your home office must be used as your principal place of business. “Principal” is not synonymous with “sole”. You may conduct business in more than one location. In that case, you need to evaluate the value of activities conducted in each location and the amount of time spent in each place. The key activities to monitor are where you spend time doing administrative or management activities.Administrative or management activities include:
- Managing invoices (incoming and outgoing)
- Maintaining books and records
- Ordering supplies
- Setting up appointments
Do you do these activities regularly and exclusively at your home office? Do you have no other fixed location where these activities are performed? Your home office space may qualify for the deduction.
