Your home office business deductions are based on the percentage of your home used for the business or a simplified square footage calculation.
Direct expenses
Money spent to repair or maintain the business space is deductible. If you paint the room that is your home office, for example, the entire cost can be deducted. Although no part of the cost of the first telephone line on your home can be deducted, the full cost of a special line for your business and other direct expenses—such as the cost of long-distance business calls—can be written off.
Indirect expenses
These will probably be your most fruitful home office deductions. Because part of your home qualifies as business property, part of the costs of running it can be converted from non-deductible personal expenses to business write-offs. If your office space takes up 20% of the house, you can deduct 20% of your bills for utilities, homeowners insurance, homeowners association fees, security, and general repairs and maintenance.
If you own your home, you depreciate the business part of the house. Depreciation for major home improvements is deducted (indirectly) by adding an asset to the business. The cost of general home improvements is added to your cost basis which lowers your gain when the property is sold. TurboTax will help you to calculate your deductible depreciation expense for your home office.
- If you include home depreciation as part of the home office deduction and eventually sell your home at a profit, you will have to pay a capital gains tax on the total amount of depreciation deductions you took while you were living there, assuming you sold the home for a profit.
- Limit on write-offs - the law puts a cap on how much you can deduct for the business use of the home. Basically, your home office deductions can’t exceed your home-based business income. In other words, home office expenses can’t create a tax loss to shelter other income.
See https://ttlc.intuit.com/questions/3396381-what-options-do-i-have-in-home-office-deductions-for-a-new... for an example.
