From the Nolo Business & Human Resources Center
The Home Office Tax Deduction
Running a business from home can help you lower your
tax bill.
When you use part of your home for business, you may be able to deduct
expenses for what the IRS calls the "business use of your home." If you meet the
technical requirements of the tax law, you should be able to deduct a percentage
of many of the costs of running your home, such as utilities, rent, insurance,
depreciation, mortgage interest, real estate taxes, and some casualty losses,
repairs, and improvements (if they relate to the part of the house you use for
business).
The home office deduction is available to renters and homeowners alike. It is
available for office space and other areas you use for business in your home --
such as a studio, workshop, or garage. And according to the IRS, your "home" can
be a house, condo, or apartment unit -- or even a mobile home or boat, as long
as you can cook and sleep there. However, you must meet two tax law requirements
to qualify for the home office deduction:
Requirement #1: Regular and exclusive use. You must
regularly use part of your home exclusively for a trade or
business.
Requirement #2: Principal place of business. You must
also be able to show that you use your home as your principal place of business.
Alternatively, you must be able to show at least one of the
following:
- You meet patients, clients, or customers at home.
- You use a separate structure on your property exclusively for business
purposes.
We'll explain these requirements in turn below.
 Ordinary business expenses are deductible even if you
don't qualify for the home office deduction. If you don't meet the rules
above, you can still deduct ordinary and necessary business expenses that you
incur at home -- for instance, long-distance phone calls, a separate business
telephone line, and the cost of office supplies and equipment. The above IRS
rules apply only to the expenses of actually running and maintaining your home,
such as utilities, rent, depreciation, home insurance, mortgage interest, real
estate taxes, and repairs.
Regular and Exclusive Use
To take deductions for home-related expenses, you must regularly use part of
your home exclusively for your trade or business.
Regular use. The IRS doesn't offer a clear definition of
regular use -- only that you must use a part of your home for business on a
continuing basis, not just for occasional or incidental business. You can
probably meet this test by working a couple of days a week from home, or a few
hours each day.
Exclusive use. Exclusive use means that you use a portion of
your home only for business. If you use a room of your home for your business
and also for personal purposes, you don't meet the exclusive use test. However,
you can set aside a portion of a larger room to be used only for business, as
long as your personal activities don't stray into it.
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