If you run a business from home, you may be entitled to a home office deduction. This is only if you claim your home office as a business write-off on Schedule C as miscellaneous deductions have been eliminated for tax years 2018-2025.
Your business space doesn’t have to take up an entire room, but you have to use that space exclusively for business purposes.
You must also meet at least one of the following conditions:
- Your home must be your principal place of business. In other words, it’s the only place you have to conduct administrative and management activities, such as billing customers, keeping the books, setting up appointments, or placing orders.
- You use the space to meet with your customers, clients, or patients.
- You use a space in a separate structure not attached to your home; for example, a detached garage.
- You use the space to store inventory or product samples, and your home is the only fixed location of your business. For example, you are an outside salesman, and you store product samples in your basement.
- You use the space as a licensed day-care facility.
Caution: Taking the home office deduction can limit the tax-free gain on the future sale of your home.
Optional square foot deduction. Taxpayers can use an optional per square foot deduction for a home office. This optional method does not change the criteria of who may take a home office deduction. The deduction is $5 per square foot of home office up to a maximum of 300 square feet (a maximum deduction of $1,500). Your home mortgage interest and real estate taxes can still be taken as itemized deductions. There is no recapture of depreciation in later years for years when this optional method is used.
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