I have two homes. They are both on one lot and have one mortgage, but two separate addresses. They also have different cable and gas/electric, but same water line. They cannot be sold separately. (Old property laws.) For many years I used the second home as a rental unit with a tenant in which I filed normally on a Schedule E.
I gave my tenant notice and converted this home to 100% for my small business as of 8/1/21. My front house (that I live in) is 1000 sq ft., and the back house (which is my business), is 400 sq ft. This is not a new business but I did not use a home office deduction in the past even though I itemized normal things on my Schedule C. I just didn't have a designated home office in my main residence prior to 8/1/21.
So my confusion is about the Home Office Deduction. Someone told me (to simplify) that I should just combine the two homes (square footage-wise for tax purposes) for a total of 1400 sq ft. and just deduct the back house at 400 sq ft. , which is about 28.5% of the total square footage. So do I use that 28.5% for all my usual deductions? Or am I completely off base here? I know that I can deduct the office furniture, internet, etc. at 100% but am confused when I get to my mortgage interest, etc. Not sure if I am supposed to separate those for my overall deductions.
Thanks in advance.
