Home Office Deduction

[donloa60]

I have a dedicated space at home that I use for my business.  I've read that there is a $5 per 300sf (max) 2022 deduction.  Is that for the entire deduction, or is that a per month deduction?  If I've used my place every month for business, shouldn't I be able to use the deduction monthly? $1500 x 12?

I've also read that there is alternate option to use 25% deduction that can be used.  Is that 25% of each monthly rent/mortgage payment?

[mfields2]

That $5 per square foot deduction is using the simplified method, and that rate is assuming you used the office for the entire year.  If you used the office for less than a full year, you need to adjust your square feet used for the calculation.   So if your home office is 300 square feet but you used it for only 6 months, you would adjust the number of square feet to 150 to make your calculation.  $150 x $5/sf = $750.  Every month you use the home office for at least 15 days qualifies as a "month" for purposes of determining your home office use.

Most of the times when I run the calculations for my tax clients, I find the actual expenses are much more beneficial than the simplified method.  This is especially true for high rent apartments (like New York City or Boston), where the monthly rent will create a massive tax benefit when compared to the Simplified Method.

[donloa60]

Ok, so if I used the 300sf every month for an entire year, it would be a total of $1,500 that I could write off for the year. 

But in my case, I'll have used it for 7 months so would that be 300sf/1.71 = $875 Total to write off?

[mfields2]

Yes, you have the math right on that. 

But again, make sure you check your actual expenses.  Let's say your house is 3,500 square feet and 300 are for the home office.  So about 8.5%.  You used it 7/12 of the year (58%) so you net out to 4.95%.

So if you housing expenses are more than (875/.0495) = $17,676 you "win" by using the actual expenses.  Housing expenses = property tax, home mortgage interest, homeowners insurance, mortgage premium insurance, utilities, security system, homeowner association fees . . . 

[donloa60]

I'm sorry for continuing to bug you, but you have been so helpful and I really appreciate you.  Could you tell me who wins with my actual office to entire space calculation?

My actual sf I use in my apartment is 130/576 = 23%

Thank you so much!!

[mfields2]

It's probably going to be the actual expenses method, if you paid more than $6,530 for the year in rent, utilities, and renters insurance.  

[donloa60 · Accepted solution]

Ah ok, so for my situation:

Home Office square footage = 130 sf

Total Apartment square footage = 576 sf

Actual Expenses Method = 130sf/576sf = 23%

My current Rent = $1,650/month (not including utilities, but I will calculate those the same way)

I've been in business for 7 months out of this year (2022)

$1,650 x 7 months = $11,550

$11,550 x .23 = $2,657

Is $2,657 the total amount I can use as an expense to get me to my taxable income?

[mfields2 · Accepted solution]

That looks right to me

[Queman1911]

Last year I was able to use a percentage of my home used for the home business. I dod not see it in the 2022 Turbo Tax. Where is it 

[CatinaT1]

Business use of home is reported on Form 8829 unless you use the simplified method. If you look at your Schedule C, line 30, you will see which method you took.  Be aware that business use of home can not be used if you do not have a net profit. Any amount you can not use will be carried over to the following year.

 You can view your Tax Summary here:   

1. Log in to your tax return 
2. Click on Tax Tools on the left side of the screen (you may need to click on Continue in the center first).   
3. Click on Tools.   
4. In the box that pops up in the center, click on View Tax Summary.