Can I take the Home Office Deduction?
If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation.
The home office deduction is available for homeowners and renters, and applies to all types of homes, from apartments to mobile homes.
Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room (or part of a room) for conducting your business, you need to figure out the percentage of your home's square footage you devote to your business activities. TurboTax will help you with the calculations, you just need the square footage of your home or apartment, and the square footage of you office space.
There are two basic requirements for your home to qualify as a deduction:
You must regularly use the business part of your home exclusively for conducting business.
For example: If you use an extra room to run your online business, you can take a home office deduction for the extra room. However, you cannot also use that space for other purposes, even occasionally.
On the other hand, say you sell items stored and shipped from an online retailer. You may or may not not receive or store items in your office and only use the office every few days to monitor and respond to orders. The rest of the time the office is used for TV and entertainment for your family and friends. This does not qualify for a home office deduction as it fails this requirement as it is not used exclusively for your business.
You must show that you use the business part of your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home office substantially and regularly to conduct business, you may qualify for a home office deduction.
You can deduct expenses for a separate free-standing structure, such as a studio, 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 the only place where you meet patients, clients, or customers.
For example: You have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the percentage of your home's floor space used exclusively and regularly for business.
Another example: You sell items at a flea market or farmers market, but you assemble, package, or store the items in a room dedicated to your business. You can deduct your expenses for the percentage of your home's floor space used exclusively and regularly for business. And, the portable shelter and tables you use at the market could also be a deduction.
In addition to the two tests above, an employee may qualify for a home office deduction for the space used for your work. You must meet both tests above, plus:
- Your business use must be for the convenience of your employer, and
- You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.
If your use of the home office is merely appropriate and helpful or is a convenience to you as an employee, you cannot deduct expenses for the business use of your home.
For example: To save commuting time and car expenses, you work from home 2 or 3 days a week. Your employer maintains office space for you in their building as your normal work place. Here your office is strictly for your convenience, and is not a home office deduction.
There can be exceptions, as is often the case with taxes.
Say your employer is in a distant city, and for their convenience, you are required to have an office to better serve their customers in your city. In this case, you may deduct the home office if they do not reimburse you.
If you've already gone through the interview, jump directly to the entry screen for the Home Office Deduction, follow these steps.
- In the TurboTax search box, enter home office and press the Enter key.
Click the Jump to home office link in the pop-up.
- On the Did you have any income and expenses for a business in 2014? screen, click Yes.
- Follow the prompts to enter your home office.
We recommend using a worksheet from IRS Publication 587 Business Use of Your Home to organize your farm, office, and other expenses.
First, fill out either:
- The Worksheet to Figure the Deduction for Business Use of Your Home from IRS publication 587, pages 23 and 24 have the worksheet and instructions.
This worksheet is useful for tracking all expenses related to your home office.
- The Simplified Method Worksheet for business use of your home from IRS Publication 587, pages 26 and 27 have the worksheet and instructions.
This simplified method is based on the size of your home office, using a fixed deduction of $5 per square foot when your home office is 300 square feet or less.
Then come back to TurboTax and go through the Business Income and Expenses for your farm.
When you get to the screen Your Farming Income and Expenses, scroll down to Farm Expenses and select Other miscellaneous expenses.
On the Any Miscellaneous Expenses screen, enter "Business use of home" in a blank description field. Then for the amount, enter the allowable expenses for the business use of your home from line 33 on your worksheet (line 5 of the simplified worksheet).
If you've already gone through the step-by-step interview, to jump directly to the entry screen for this topic, follow these directions.
- In the TurboTax search box, enter home office, employee and press the Enter key.
Click the Jump to home office, employee link in the pop-up.
- On the Tell Us About the Occupation You Have Expenses For screen,
Enter your occupation and click Continue.
- Follow the prompts.
Does your partnership agreement require you to pay office expenses out of your own pocket? If yes, you will need to calculate the expenses and enter them into TurboTax. If not, you won't be able to take a deduction for office expenses.
If you are able to take the deduction, first you'll need to go to the the IRS website and get IRS Publication 587 Business Use of Your Home. Next you'll need to fill out one of the worksheets in publication 587; go to the index and look up "Partners." Either use your detailed expenses on the Worksheet to Figure the Deduction for Business Use of Your Home, or the simplified office square footage method on the Worksheets to Figure the Deduction for Business Use of Your Home (Simplified Method).
After you have filled out one of these worksheets, go through the Schedule K-1 questions for your partnership.
On the screen with the title Describe the Partnership, select the box for I am required to pay supplemental business expenses on behalf of this partnership/LLC for which I am not reimbursed.
When you get to the Miscellaneous Supplemental Expenses screen,
- Enter the allowable expenses for the business use of your home from the worksheet you used into the amount field.
- Enter Business Use of Home in the description field.
For more detailed information regarding tax deductions for your home office, refer to IRS Publication 587 Business Use of Your Home. Here are some of the most frequently asked questions:
1. I manage rentals from my home, but TurboTax does not let me deduct my home office. Why not?
Passive income does not qualify for the home office deduction, and the IRS considers rental property income as passive. To qualify for a home office deduction you would need to have a small business (Schedule C), a farm/ranch (Schedule F), or be an employee who is required by the employer to maintain a office in their home.
2. I entered the info for the home office deduction but my taxes stayed the same. How come?
Most of the expenses associated with the home office deduction cannot create or increase a loss for your business. However, deductible mortgage interest, real estate taxes, and casualty losses can create or increase a business loss, while other expenses including rent, utilities, maintenance, and insurance cannot.
These disallowed losses can be carried over to the following year until they can be used.
3. If I have two businesses, can I take the home office deduction twice?
Yes, if you meet all of the requirements for both businesses.
- If you have a separate space for each business, you just do the home office process twice.
- If you have two businesses that share the same office space, you need to split the space and expenses between the two companies.
4. I do most of my work at the homes and businesses of my clients. Can I still take a deduction?
Probably. Even though you perform work at clients' homes (as a plumber or IT technician, for example), if you perform administrative tasks or store inventory at your home and meet all of the other home-office requirements, then you would likely qualify.
5. Can I claim the home office deduction for my investing activities?
Probably not. However, if you are classified as a trader, for example, and meet all of the requirements for the home office deduction, then you probably could. (See the IRS definition of trader.)
If you are managing your investments rather than working as a trader, your activities would not be classified as a business and would not meet the requirements of the home office deduction.
6. As a teacher, can I deduct a home office since I work there at night and weekends?
Probably not. If you are a classroom teacher at a school with a building then you have a normal place of business that is not your home.
However, if you taught for an internet based school and had no other place of business, then you would be able to take a deduction if you meet all of the other requirements.
7. I only worked part of the year from home. What can I deduct?
If you meet the office in home requirements for only part of the year, you can still take a portion of the expenses as a deduction.
For example, if you only worked half of the year from home, then you would take half of what you would take if you had do this for the entire year.
8. Do I have to depreciate my home?
No, but depreciation is allowed if you take the home office deduction.
Even if you don't use depreciation, you will have been deemed to have taken it by the IRS. This comes into play when you sell your home and need to recapture the depreciation if you have a gain on the sale.
9. Can a percentage of my office be used in the IRS definition of exclusively?
You can use whatever portion of your home that meets the IRS exclusive and substantial use requirement, even if the area is a small portion of a larger area, such as a desk, closet, or filing cabinet in a room.