Calculating home office expense with additional storage attached to lease

[well_shod]

I'm trying to figure out how to calculate the total cost of my home office. As a renter in my apartment complex, I have the option to add a garage for additional monthly rent. Do I treat that as two separate charges when calculating my home office expense? The charges are broken down on my rental agreement, but they are both on the same contract and paid together in the same transaction.

For an example (figures are made up to simplify the math)

*My apartment is 500 sq feet, costs me $1,000/month, and I use 50 of 500 square feet as an office

*Garage is 100 sq feet, costs me $100/month, and I use all of it as inventory storage.

Can I combine the two into one (A) or do I have to calculate them separately (B)?

A) 150 sq feet / 600 total sq feet rented = 25% (business use) * $1,100 (total monthly rent); Expense of $275

-or-

B) 10% * $1000 = $100 (apt) + $100 (garage); Expense of $200

[VictoriaD75 · Accepted solution]

You should report each separately (as two separate home office deductions), as each has different requirements for the deduction. 

Per the IRS for the garage:

You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers.

Per the IRS for the office within the apartment:

There are two basic requirements for your home to qualify as a deduction:

1. Regular and exclusive use.
2. Principal place of your business.

There are strict limits on who may take the home office deduction. The general rule for a home office deduction states that a taxpayer will not be allowed a deduction for the use of a dwelling unit used by the taxpayer as a residence. The law provides four exceptions to the general rule under which a deduction may be allowed.

Under the first exception, a deduction is allowed if the home office is used on a regular basis and exclusively as the self-employed taxpayer's principal place of business. To meet the exclusive use test, a specific area of the home must be used only for the trade or business.

A second exception states that a deduction is allowed if the home office is used exclusively and on a regular basis by patients, clients, or customers in meetings or dealings with the taxpayer in the normal course of a trade or business.

Under the third exception, the deduction of home office expenses is allowed if the home office is a separate structure not attached to the dwelling unit and is used exclusively and on a regular basis in the taxpayer's trade or business.

The fourth exception allows a deduction of a portion of the cost of a dwelling unit if it is used on a regular basis for the storage of business inventory or product samples held for use in the self-employed taxpayers' trade or business of selling products. Under this exception, the taxpayer's home must be the taxpayer's sole place of business.

The Home Office Deduction