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12 Tough Questions (and Answers) About Home Office Deductions

Do you work from home? We asked Julian Block, author of “Julian Block’s Home Seller’s Guide to Tax Savings,” key questions about taking the home office deduction, which now includes a simplified option. As always, check with a tax pro about your circumstances.

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Your Backyard Office

Question: My home office is a separate structure. Home much is deductible?

J.B.: A separate structure is easy for the IRS to identify as a qualifying home office, as long as you use it regularly and exclusively for business.  If you use Form 8922 to take actual expenses, you can depreciate the entire cost to build a separate office structure.

 

Image: Decorated Shed

Image: Decorated Shed
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  • Question: Can I put a home office anywhere?

    Julian Block: A primary rule in figuring if your office meets the IRS criteria is that you must use the space exclusively and on a regular basis for your business, and it must be your primary place of business. Here, you might add a partition to define your space.

     

    Image: IKEA

  • Question: I’m a massage therapist, but I don’t work full-time. Does my studio qualify for a home office deduction?

    J.B.: If your studio is your principal place of business, and it’s used exclusively and on a regular basis, then you qualify. Section 280A of the Internal Revenue Code provides guidelines. You don’t have to work full-time.

     

    Image: Maree Natal Bento, LMT

  • Question: My home office is a separate structure. Home much is deductible?

    J.B.: A separate structure is easy for the IRS to identify as a qualifying home office, as long as you use it regularly and exclusively for business.  If you use Form 8922 to take actual expenses, you can depreciate the entire cost to build a separate office structure.

     

    Image: Decorated Shed

  • Question: I converted a big closet to an office space. Is that deductible?

    J.B.:
    A partition or other physical separation is helpful — but not required by the IRS — in determining if your space is a home office. Here, the office is neatly tucked away behind a pair of bi-fold doors, and the office space is well-defined.

     

    Image: Rossington Architecture

  • Question: I run my business on a laptop, which I use anywhere. How do I claim a deduction?

    J.B.:
    There’s no home office deduction here, but you may depreciate your laptop (and other business-related equipment) on Schedule C. Or, claim “first-year expensing,” which may allow you to write off the entire cost of your equipment at once.

     

    Image: Citrix Online/Workshifting

  • Question: What portion of my home utility bills is deductible?

    J.B.: Deduct utility costs as a percentage of your total utility bill if you use Form 8829. For example, if the square footage of your office equals 10% of the total square footage of your home, you can deduct 10% of your total utility bills. If you use the simplified home office deduction ($5/sq. ft. up to 300 sq. ft. or $1,500), you can’t also deduct your home office utility costs.

     

    Image: Citrix Online/Workshifting

  • Question: If I conduct business mainly outside my home, can I still deduct the space in my garage where I store my inventory?

    J.B.: The storage space you claim for a deduction must be separately identifiable and suitable for storage. That means it doesn’t have to be physically connected to your principal place of business, but it must be used exclusively for business purposes.

     

    Image: Adam Burn/Getty Images

  • Question: I’ll be out of town for a while; can I claim any part of the home office deduction if I work while I’m away?

    J.B.: If your home place of business meets the regular requirements for exclusive, regular use, then the deduction remains available when you work while traveling, or do some tasks from a fixed location other than your home.

     

    Image: Citrix Online/Workshifting

  • Question: I’m remodeling to include a separate entrance for my business. Is the remodeling work deductible?

    J.B.: It’s not a deductible expense; rather, it’s depreciable. The cost of building a separate entrance gets added to the cost basis of your home. For a look at how depreciation is figured, check IRS Publication 946. (Note: Depreciation isn’t relevant if you take the simplified home office deduction.)

     

    Image: Comstock Images/Getty Images

  • Question: I use a lot of living space for my home-based day care business, but at night and on weekends, the day care is closed. What’s deductible?

    J.B.: The rule to qualify for the home office deduction is “regular and exclusive use” of space. But a day care facility is an exception. It must be used regularly, but not exclusively. You must meet all governing licensing requirements to qualify as a day care.

     

    Image: Comstock Images/Getty Images

  • Question: I work in the same home office space as my husband, but we have separate businesses. Can we both take the home office deduction?

    J.B.: Each business would have to file its own Schedule C, but only one of you can take the deduction for the home office space.

     

    Image: Andrew Egenes/Flickr

  • Question: Is a portion of the maintenance that contributes to the upkeep of my home deductible for my home-based business?

    J.B.: Probably not, unless the maintenance is connected to your work. If you have a landscaping design business, then maintenance may be essential to your livelihood, and a portion might be deductible. Consult your tax adviser.

     

    Image: Nick Daly/Digital Vision/Getty Images

  • No more dragging your heels. These articles will help put your taxes in the rear-view mirror today:

    2 Deduction Options When You Work from Home

    How to Claim Your Energy Tax Credit

    What You Should Know About Your Home and Your 2013 Taxes

  • Out in the Open
  • Studio But Not an Office
  • Your Backyard Office
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  • Me and My Laptop
  • Power Up Your Deduction
  • Inventory Storage
  • Aloha! I’m Taking my Biz to the Beach
  • Opening the Door to Deductions
  • The Kids are All Right
  • Two Heads More Deductible than One?
  • Beating the Bushes for Deductions
  • Looking for more tax tips?
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  • your-backyard-office
  • tucked-away-in-a-nook
  • me-and-my-laptop
  • power-up-your-deduction
  • inventory-storage
  • aloha-im-taking-my-biz-to-the-beach
  • opening-the-door-to-deductions
  • the-kids-are-all-right
  • two-heads-more-deductible-than-one
  • beating-the-bushes-for-deductions
  • more-slideshows
  • Image: IKEA
  • Image: Maree Natal Bento, LMT
  • Image: Decorated Shed
  • Image: Rossington Architecture
  • Image: Citrix Online/Workshifting
  • Image: Citrix Online/Workshifting
  • Image: Adam Burn/Getty Images
  • Image: Citrix Online/Workshifting
  • Image: Comstock Images/Getty Images
  • Image: Comstock Images/Getty Images
  • Image: Andrew Egenes/Flickr
  • Image: Nick Daly/Digital Vision/Getty Images