Navigating the home office deduction

A growing number of Americans are operating their own businesses, and many choose to do so out of their homes. Business owners with home offices may be eligible for a deduction during tax season. However, many fail to take the legitimate write-off due to concerns about the stringent qualifying rules that accompany the benefit. Although the Internal Revenue Service does require that a number of criteria be met before claiming a home office deduction, owners can work closely with their tax preparer to ensure they are truly eligible. 

The write-off applies to a range of expenses associated with running a home office, including rent or mortgage payments, mortgage interest, insurance, utilities, repairs, supplies or equipment and depreciation. The deduction is available to not only homeowners, but renters as well. Further, it applies to all types of housing properties, including homes, apartments, condos, townhouses and mobile homes. Owners should keep in mind, however, than they cannot write off the full amount of their mortgage or utility bills, but only the percentage of those balances that apply to the office space they use. 

Qualifying criteria
In order to be eligible for the home office deduction, the IRS requires that individuals meet two rules. First, the space must be used regularly and exclusively as a home office. This means that if business owners only utilize the space every so often to do paperwork and perform other non-work related tasks in that space, it may not qualify for the deduction. Second, the area must also be considered an owner's principal place of business. Although individuals may also do business at another location, if they regularly use their home office to have in-person meetings with patients, clients, or customers in the home in the normal course of business, it may still qualify for the benefit. 

One area that may cause some confusion among taxpayers is whether free standing structures or rooms that are unattached to the main home can qualify for the benefit. The IRS does allow people to claim home offices held in free-standing garages, basements, attics, barns and studios as long as they meet the aforementioned stipulations that define an office. 

Lastly, employees may also qualify for a home office deduction if they meet the two tests previously mentioned as well as two additional criteria. First, the business must be used for the convenience of the employer. Second, workers must not rent any part of their home to the employer and use the rented portion to perform services as an employee for that employer. Workers who have questions about whether they can claim the benefit should consult their tax preparer. 

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