Business Portion of the Home
An important part of the qualification
requirements for the home office deduction is that a portion
of your residence be used regularly and exclusively for business purposes,
whether it be as an office, a conference room, a lab area, storage
room, or some other type of business usage.
If you do have
an area that you use regularly and exclusively for business, the tax
law permits you to deduct a portion of certain expenses relating to
your home. For most types of home office expenses, the amount you
may deduct depends primarily on the amount of space in the residence
that is used for business.
If you use the regular method for
computing the home office deduction, there are two common ways to
determine this. The tax laws permit you to use whichever results in
the larger deduction. The first method looks at the number of rooms
used for business, divided by the total number of rooms in your house.
The second method looks at the square footage of the space used for
business, divided by the total square footage of the house.
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Example If you have an eight-room house and
use one room as an office, your business use percentage will be 1/8
or 12.5 percent. Alternately, if your home office is 168 square feet
and your home is a total of 2000 square feet, your business use percentage
will be 168/2000 or 8.4 percent. Most of your home expenses
(such as rent or real estate taxes and mortgage interest) must be
multiplied by the larger of these two fractions to determine the portion
that's deductible as a home office. |
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In addition, the IRS provides a special tax break for
home day care operators. These business owners can count all the
space they regularly use for their day care business as the "business
portion of the home" even though the same space is used for personal
or family purposes. For example, they may include the bathroom, the
kitchen where day care meals are prepared, and the family bedrooms
where naps are taken. However, unlike most home business operators,
they must prorate these expenses for the
hours in which the day care is offered.
Under the simplified method, you must use the allowable
square footage of home use for business (not to exceed 300 square
feet) multiplied by $5.
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