Home Office Deduction Safe Harbor, Part II

As promised, this week concludes my Home Office Deduction Safe Harbor column.

If you are not using the safe harbor calculation, you must figure the amount of your deduction on IRS Form 8829, Expenses for Business Use of Your Home. Deduct 100% of expenses that are directly related to the home office. This can include painting, cleaning and the premium for a home office rider on your homeowner’s insurance policy. Ditto for your office telephone line and utilities if you have separate hookups.

You are also allowed to deduct a percentage of indirect expenses that relate to your entire residence. These include mortgage interest, real estate taxes, condo fees, rent, depreciation (over 39 years), utilities, security, garbage pickup, maintenance, repairs, insurance, snow removal, and so on. What percentage of these expenses can you deduct? If you follow the instructions for Form 8829, it will lead you through a square footage analysis. Count only living space in figuring the percentage (not your garage, unfinished basement or covered patio).

Taxpayers using this calculation option cannot depreciate the portion of their home used in a trade or business. But they can claim 100% of allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions don’t have to be allocated between personal and business use as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Have a great week,