What home office expenses are deductible?
Generally, if you run a business from your home and use a separate room or area of your home for that business, you may be able to deduct certain expenses as home office expenses. To be able to take such home office deductions, you must be able to prove that you use that particular area of your home exclusively, and on a regular basis, either as your primary place of business or as a place of business to meet with clients and customers. While it is not necessary for the area to be a separate room or otherwise physically separated from other parts of the house, your deduction is more likely to be upheld if this is the case. When you have a valid home office, you can deduct a variety of expenses, as long as the benefit the office space, such as a portion of your real estate taxes, mortgage interest, utility bills, as well as those repair and construction expenses directly related to the home office area.
You can calculate what portion of expenses can be deducted for the home office in one of two ways. First, you can compare the square footage of the home office area to the square footage of the rest of your home, and use that percentage (for example, if you home is 2000 square feet, and your office is 300 square feet, you could deduct 15% of the relevant expenses). Alternatively, when your home’s rooms are all comparably sized, you can calculate the proper percentage by comparing the number of rooms used for your office to the number of total rooms in your home (thus, if you use two rooms for your home office, and your home has eight total rooms, your home office percentage would be 20%).
If you have a primary job that is not related to your home office, but you run a secondary job from your home office, the above still applies as long as the home office is your principal place of business for your second business or it is where you meet with clients, customers or patients. While you should always have records proving your home office claims, this is particularly true where you are claiming a second business - you should have documents establishing that you are involved in such a business.
All of these home office deductions are included in the miscellaneous deductions and are therefore subject to the 2% floor (collectively with all other miscellaneous deductions). In addition, you cannot deduct any home office expenses that exceed your net business income. So if you have no net business income (for example, if you are an unpublished author), you cannot take any home office deduction.