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Beth says: I have been asked many questions about claiming my office in my home on my tax return. Below are some of the questions and answers concern home offices.
Q. I use my home for business. Can I deduct the expenses?
A. To deduct expenses related to the business use of part of your home, you must meet very specific IRS technical requirements. Even then, your deduction may be limited. If you meet the technical requirements of the tax law, you should be able to deduct a percentage of many of the costs of running your home, such as utilities, rent, insurance, depreciation, mortgage interest, real estate taxes, and some casualty losses, repairs, and improvements, if the improvement relate to the part of the house you use for business.
The home office deduction is available to renters and homeowners alike. It is available for office space and other areas you use for business in your home -- such as a studio, workshop, or garage.
Q. What are the specific IRS technical requirements to be able to claim an office in my home?
A. To take deductions for home-related expenses, you must regularly use part of your home exclusively for your trade or business.
Regular use. The IRS doesn't offer a clear definition of regular use -- only that you must use a part of your home for business on a continuing basis, not just for occasional or incidental business. You can probably meet this test by working a couple of days a week from home, or a few hours each day.
Exclusive use. Exclusive use means that you use a portion of your home only for business. If you use a room of your home for your business and also for personal purposes, you don't meet the exclusive use test. However, you can set aside a portion of a larger room to be used only for business, as long as your personal activities don't stray into it.
You can do this by showing at least one of the following:
· You use your home as your principal place of business.
· You meet patients, clients, or customers at home.
· You use a separate structure on your property exclusively for business purposes.
Q. I have a home office, but I do not want to deduct depreciation so that when I sell this house, the basis won't be affected?
A. If you qualify to deduct expenses for the business use of your home, you can claim depreciation for the part of your home that is a home office. Generally, the part of your home that is a home office is depreciated over a recovery period of 39 years using the straight line method of depreciation and a mid-month convention.
If you do not claim depreciation on that part of your home that is a home office, you are still required to reduce the basis of your home for the allowable depreciation of that part of your home that is a home office when reporting the sale of your home.
Q. I purchased a computer last year to run my home business, can I deduct or depreciate the cost of the computer or internet connection.?
A. The entire acquisition cost of a computer purchased for business use can be written off in one year or depreciated over a 5-year recovery period. To write off the computer in the first year, the property must be used more than 50% for business use (as opposed to investment use), and meet the other requirements for expensing.
Q. I purchased a computer last year to do online day trading part-time from home for additional income. Can I deduct or depreciate the cost of the computer or internet connection from my investment income?
A. You may deduct investment expenses. This would include depreciation on the portion of your computer used for investment purposes, and the portion of your internet access charges used for investment purposes.
Because these deductions are for investment expenses rather than for business expenses, these deductions must be reduced by 2% of your adjusted gross income
Q. I work at home, because there is no “good” place to work at the office. Can I claim office at home?
A. If you are an employee and you use a part of your home for business, you may qualify for a deduction. You must meet the tests discussed above plus:
Your business use must be for the convenience of your employer, and
You do not rent any part of your home to your employer and use the rented portion to perform services as an employee.
Whether the business use of your home is for your employer's convenience depends on all the facts and circumstances.
However, business use is not considered to be for your employer's convenience merely because it is appropriate and helpful.
On the other pages of this web site you will find Office in the Home information that has been collected from many independent sources. Each article or news item offers a different point of view and resources and not necessay mine. This information is for general information only.
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