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IRS Summertime Tax Tip 2008-03
If you plan to run your small business out of your home you may be temped to "write-off" many of your household expenses. But how do you know what is deductible and what is not? The IRS has some advice that may help answer the question: "Can I take a Home Office Deduction?"
Generally, expenses related to the rent, purchase, maintenance and repair of a personal residence are not deductible.
However, if you use part of your home for business purposes you may be able to take a home office deduction. Expenses that can be deducted include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, repairs and depreciation.
In order to claim a business deduction, you must use part of your home:
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Exclusively and regularly as your principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of your business, or in connection with your trade or business where there is a separate structure not attached to the home; or
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On a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.
In addition, if you work as an employee you can claim this deduction only if the regular and exclusive business use of the home is for the convenience of your employer and the portion of the home is not rented by the employer.
“Exclusive use” means a specific area of the home is used only for trade or business. “Regular use” means the area is used regularly for trade or business. Incidental or occasional business use is not regular use.
Non-business profit-seeking endeavors such as investment activities do not qualify for a home office deduction, nor do not-for-profit activities such as hobbies.
Example: An attorney uses the den in his home to write legal briefs or prepare clients’ tax returns. The family also uses the den for recreation. The den is not used exclusively in the attorney’s profession, so a business deduction cannot be claimed for its use.
These requirements are discussed in greater detail in Publication 587, Business Use of Your Home available at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).
Link: Publication 587, Business Use of Your Home
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