Ask Kim
Home-Office Deductions are Worth the Hassle
I hear that it's tough to qualify for the home-office tax deduction. Is it worth taking the risk?
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
January 30, 2004
I just started doing self-employed consulting work from my home last year. I hear that it's tough to qualify for the home-office tax deduction. Is it worth taking the risk?
If you work for yourself and are subject to the higher self-employment tax, it's definitely worth it.
You can write off your home-office expenses if you qualify for the deduction:
- You must use an area of your home regularly and exclusively for business.
- The area must also be the principal location of your business or the place where you usually meet with clients.
Your home office doesn't need to be a separate room, but it should be separated from the rest of your living space -- you can't take the deduction for your living room, for example, if you occasionally sit on the couch and work on your laptop.
If you qualify, you can deduct part of your rent or mortgage interest, electricity and other utilities, homeowners insurance and cleaning bills. The size of the deduction is based on the percentage of your home that you use for business.
If you use an extra bedroom (180 square feet) in your 2,400-square-foot home as your office, then you can write off 7.5% of those expenses. If you pay $1,400 per month in mortgage interest, you can knock $1,260 per year off your self-employment income. The remaining 92.5% of your mortgage interest would be itemized on Schedule A.
You can also deduct the full cost of any painting or repairs to the office area. Homeowners can claim depreciation deductions, too. But you can't deduct more than your home-based business earned for the year.
For more information about the home-office deduction, see IRS Publication 587 Business Use of Your Home.