Taxpayers need to follow the correct steps to claim a home office deduction.
When a residence is used as the principal location for a business, a portion of home expenses provides a tax deduction. This deduction is the part of home expenses represented by the percentage of the residence used for business. The home office does not need to be an entire room in the residence. But it must be an area used exclusively and regularly for business.
Instructions
1. Measure the dimensions of the home office area with the tape measure. Record the number of square feet.
2. Divide the square footage of the home office area by the total square feet of the residence. Record this with "Home Office Percentage of Residence" as the label.
3. Add the total insurance premiums paid for the residence. Record the total with "Insurance" as the label. The total should include any premiums paid from escrow by the mortgage company.
4. Add the amounts on receipts for home repairs and maintenance. Some examples are pest control, yard maintenance and plumbing repair. Record the total with "Maintenance and Repairs" as the label.
5. Add the amounts on receipts for home utilities. Record the total with "Utilities" as the label.
6. Add the amounts on receipts for other expenses related to operation of the home. Some examples are security system service and homeowner association dues. Record the total with "Other" as the label.
7. Add the mortgage interest from Box 1 of the 1098 plus the mortgage insurance premiums from Box 4 of the 1098 plus property taxes paid. Record this total with "Mortgage and Property Taxes" as the label.
8. Multiply the "Mortgage and Property Taxes" total by the "Home Office Percentage of Residence." Record the result with "Deductible Part of Mortgage and Property Taxes" as the label.
9. Total the expenses labeled "Insurance," "Repairs and Maintenance," "Utilities" and "Other." Record this total with "Home Operating Expenses" as the label.
10. Multiply the "Home Operating Expenses" total by the "Home Office Percentage of Residence." Record the result with "Deductible Part of Home Operating Expenses" as the label.
11. Add the "Deductible Part of Mortgage and Property Taxes" to the "Deductible Part of Home Operating Expenses" to calculate the home office deduction.
Tags: total with, Deductible Part, Home Operating, Home Operating Expenses, Mortgage Property, Mortgage Property Taxes, Operating Expenses
