I'm often asked how to calculate the home office deduction and there is a little confusion out there about the methods for accomplishing this deduction accurately. Most of the confusion comes from the fact that the percentage of business use can be calculated in two different ways: (1) square-footage method and (2) rooms method.
Home office deductions are based on the percentage of business use. The square footage method is simply the square footage of the space used as a home office divided by the total square footage of the home. In addition, the IRS states in Publication 587, Business Use of Home, a taxpayer can base the percentage on the number of rooms if the rooms are about the same size.
Example: Your house is 8 rooms and a total of 3000 square feet. The room where you have your business office is 300 square feet. Using the square footage method, your total deduction is 10%, whereas the rooms method yields a 12.5% deduction (1/8).
Be sure to review the qualifications to take this deduction in Pub 587 - there is even a decision tree in the publication to help you determine your eligibility for the business use of home deduction. Also review the types (direct, indirect and unrelated) of expenses allowed for deduction on Page 8 of Pub 587.
Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.