Home office space and computer use

[sploosh]

I've long assumed that even though I do all my self-employment work in one bedroom of my apartment and the room isn't used for any other purpose, I still can't take the home office deduction because I use my computer for both work and personal matters. I recently read that I can use the percentage that I use my computer for work as the basis for the home office deduction. Is that correct? If so, how do I figure it:

(A) Multiply the office area (25% of the apartment) by the percentage I use the computer for work (call it 80%) to get a deduction of 20% of my rent;

or

(B) Multiply the amount I use the computer for work times the cost of the computer, ignoring the room, which I guess would come to $0 because I bought the computer 5 years ago;

or something else?

[Bsch4477]

The computer is too old to deduct. It doesn’t affect your ability to claim a home office if you meet the requirements. 

[AnnetteB6]

The qualifications for claiming a home office stand alone whether or not you also use a computer for your business.  The home office and the computer are two separate business expenses.

In a nutshell, you may be able to claim the home office deduction if your office is:

• Used regularly and exclusively for your business, and
• Is your principal place of business (both conditions must apply)

Click the links above to learn more about what each of those terms mean in the context of claiming a home office.

Computers on their own can also be claimed as a business expense.  Typically, if the computer is used for both business and personal use, then you cannot claim the full cost of the computer.  Instead you would claim a percentage based on how much the computer is used for business purposes.  The proportional cost of the computer is claimed in the year that it is purchased, or in the year that you first use it for business purposes.  You would do this by entering it as a Asset for the business regardless of whether you can or will claim a home office.

See the following TurboTax help articles to learn more:

Where do I enter the home office deduction for my business?

Home Office: Pros, Cons, & Taxes!
 

@sploosh 

[sploosh]

@Bsch4477 @AnnetteB6 

OK, if I'm understanding correctly, the physical space and the computer are completely separate matters. The entire physical space (25% of the apartment) counts because the room has no purpose other than work--the amount I use the computer for work is irrelevant. I can deduct 25% of the entire year's rent. (Leaving a significant business loss.) Is that right?

And when I buy a new computer or similar equipment, I would deduct the full cost times the percentage I estimate I'd use it?

[AnnetteB6]

Yes, the office and computer are two separate matters.  And your idea is correct, but it is not necessarily that straightforward.

There are limitations applied to claiming a home office.  For example, home office expenses cannot take your business into a loss situation.  Expenses not able to be claimed in the current year due to that limitation may be carried forward to future years if you use the actual expense method of claiming the home office.  The simplified expense method does not allow you to carry over unused expenses.  This is explained in a little more detail as you go through the home office section under your Schedule C in TurboTax.

For the computer or similar equipment, you would be asked to enter the full cost of the item along with the business percentage of use.  Then TurboTax will do the math for you to calculate the amount to be deducted or depreciated.

@sploosh 

[sploosh]

@AnnetteB6 

I think I get it: under the simplified expense method, the IRS limits the home office deduction to no more than net income, with no carryover to future years (perhaps otherwise lots of people would have large NOLs).

On the other hand, purchasing new equipment could (in principle) lead to an NOL that one could carry over.

If I've got it, many thanks!