How to Calculate the Home Office Deduction
The simplified option involves multiplying an IRS-determined rate (say $5) by the square footage of your home office. To use the simplified option, your home office cannot be larger than 300 square feet, and you won’t be able to deduct depreciation or home-related itemized deductions.
- Calculate the square footage of your home office. If your home office is a 15-foot by 15-foot room, then its total square footage is 225 square feet (15 feet × 15 feet = 225 square feet).
- Find out the square footage of your home. For our example, let’s say your home has a total area of 1,600 square feet.
- Now divide the area of your office by the area of your house. For our example, 225 ÷ 1,600 = 0.14 (or 14%). This decimal represents the percentage of your total home expenses that can be allocated toward the home office deduction.
After you determine the percentage of your household expenses that can be written off, you must list all of the expenses that pertain to your entire home, such as mortgage interest, real estate taxes, insurance, utilities, and depreciation for the year under the section titled “Indirect expenses” of Form 8829.
Expenses that are incurred solely for the benefit of the office space are then listed under the “Direct expenses” section of the Form. The indirect expenses are totaled and multiplied by the percentage derived earlier (14% from the example). Then the indirect expenses total is added to the total of the direct expenses.
Frequently Asked Questions about The Home Office Tax Deduction
Can I deduct my internet if I work from home?
Can I write off utilities if I work from home?
What are the General Rules?
- You must be self-employed.
- The workspace for a home office must be used exclusively and regularly for business.
- Total deductible expenses can't exceed the income from the business for which the deductions have been taken.