Taxes 2022: How Small Businesses Can Deduct Home Office Expenses
If you’re self-employed and use part of your home for business purposes, you may be able to deduct certain related expenses. To claim the home office deduction on your 2021 tax return, the IRS says that you must “exclusively and regularly” use part of your home — or a separate structure on property you own or rent — as your primary place of business.
Am I Eligible for the Home Office Deduction?
While employees are not eligible to claim this deduction, self-employed taxpayers are eligible to deduct certain home office expenses from their business income if their office qualifies. Said expenses may include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent. The deductible amount of these types of expenses may also be limited.
There are also basic requirements for your home to qualify as a deduction. The IRS definition of a “home” includes a house, apartment, condominium, mobile home, boat or similar property. It also includes other structures, such as an unattached garage, studio, barn or greenhouse.
According to the IRS, there are two requirements for your residence to qualify as a deduction:
- There must be exclusive use of a portion of the home for conducting business on a regular basis, such as an extra room.
- The home must generally be your principal place of business. You may still qualify for the deduction if you conduct business outside of the home but still use your home office for business purposes.
How to Calculate Your Home Office Expenses
The IRS states that there are two methods for calculating your home office expense deduction: the regular method or the simplified method.
Using the regular method, deductions for your home office are based on a percentage of the home devoted to business use. With this option, you’re able to claim home-related expenses such as rent, mortgage interest, utilities, insurance, repairs, depreciation and other expenses.
To determine the deduction based on the regular method, divide your home office square footage by your home’s total square footage to get your deductible percentage. Multiply this percentage by the sum of your home’s total allowable expenses.
Using the simplified method, multiply your office’s total square footage by $5. The maximum size for this option is 300 square feet and the maximum deduction is $1,500.
How to Claim the Home Office Deduction
If you use the simplified method, you can take the deduction on Schedule C when reporting your business income and expenses. If you use the regular method, submit Form 8829 with your income tax return and then report the total deduction from your business income on Schedule C.
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