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Kyoujouran
Level 2

Percent of Internet and Mortgage to Claim as Expense

I operate a business out of my home. What percent of my mortgage, internet bill, and other utilities can I claim as expenses?

3 Replies
TaxandtheCurious
Employee Tax Expert

Percent of Internet and Mortgage to Claim as Expense

Congrats on having a home-based business! You may deduct a % of your home-based office expenses if you're self-employed and use part of your home regularly and exclusively for your self-employed business and it is also your primary place of business.  There are 2 methods that you can use for this calculation:

1)  the IRS "simplified method". The simplified method has a rate of $5 a square foot for business use of the home. If the office measures 150 square feet, for example, then the deduction would be $750 (150 x $5). The maximum size for this option is 300 square feet. The maximum deduction under this method is $1,500 (300 X $5)

or

2) your actual expenses to figure out the percent and the deduction amounts you can take for the various home office expenses depending on the amount of exclusive space you are using for your home office. In order to determine the percentage you can deduct of expenses (mortgage interest, property taxes, utilities, etc), you will first need to calculate the % of business use for your home-based self-employed business activity. There are 2 methods you can use to calculate the % of business use of your home : a) Divide business rooms by total rooms in the home (do not include kitchen, bathrooms and hallways),

or

b)  # of square feet used exclusively for your self-employed business activity compared to total square feet of your home. As an example, assume your home has 1,200 square feet and the part of your home used for business activity is a room that's 10 x 12 feet (120 square feet). The percentage of office use is 120 square feet / 1,200 square feet x 100 = 10%. You would then apply the % of home business use to the applicable home expenses.

Keep in mind, if you were self-employed for only part of the year, then you must use expenses only for the months that you were self-employed to calculate their home office expense deduction. For example, if you were self-employed working from your home office from August to December, then the home office expenses would be prorated for the five months that you worked from home. Also, you should also be aware, that the business use of home expenses can not make the Schedule C income go below zero, meaning it cannot create a business loss for you.  

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Kyoujouran
Level 2

Percent of Internet and Mortgage to Claim as Expense

 

@TaxandtheCurious 

Thank you for the response. For in the room percentage calculation you said we can exclude kitchens, bathrooms and hallways. Does the exclusion extend to laundry/furnace rooms? How precisely does the IRS define a room for this purpose? For example, would a living room be counted as a room despite not have having any doors to enclose it?  Is a closet considered a separate room despite not being a livable area? etc.  

 

Thanks again for your time.

TaxandtheCurious
Employee Tax Expert

Percent of Internet and Mortgage to Claim as Expense

You can use this method if the rooms in your home are all about the same size, you can figure the business percentage by dividing the number of rooms used in your business by the total number of rooms in the house. For example, you have 5 bedrooms that are about the same size and you use one of the bedrooms exclusively for your primary home business office. 

 

However, the most exact way to figure this proportion is to measure the square footage devoted to your home office and find what percentage it is of the total area of your home. If the office measures 150 square feet, for example, and the total area of the house is 1,200 square feet, your business percentage would be 12.5% (150 ÷ 1,200).

 

Here are some additional resources for you: Home office deduction: https://turbotax.intuit.com/tax-tips/small-business-taxes/the-home-office-deduction/L1RZyYxzv 

You may also want to refer to IRS Videos for Small Business Tax Workshop which includes Business Use of you Home.  - https://www.irsvideos.gov/Business/SBTW/Lesson4 

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