Home Office Deduction: Two Conditions and Two Methods

Home Office Deduction: Two Conditions and Two Methods


First, with very few exceptions, the part of your home you use for your business must exclusively and regularly be used for the business, not personal activities. As an example, if you worked 40 hours a week in the home office but allowed your children to play video games on your home office computer, then you would not qualify for the deduction. Typically, the home office would be one room, a group of rooms or a part of a room as long as the partition is clear.

If you provide child care as a licensed day care provider, however, there is an exception. You may be entitled to at least a partial home office deduction even if you care for the children in rooms you also use for personal use after the children go home.

Second, your home office must be your principal place of business or where you regularly meet with customers. So if your company provides you with an office, but your supervisor allows you to work at home occasionally, you probably won’t be eligible for the deduction.

How the Calculations Work

Until fairly recently, the IRS had only one way to calculate the home office deduction. Basically, you determined the percentage of your home you used for business and divided expenses, such as mortgage and utilities, by the same amount. You can see how complicated this can get.

So starting in 2013, the IRS introduced a new simplified method that can be used instead of the standard method if you want to save yourself some trouble. According to the IRS, this method allows a “qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses.”

More information is available on the IRS website.

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