When you use a room in your home as a home office, there are a number of deductions that you can take when filing taxes. To ensure that you are getting credit for all of your home office expenses, put together home office worksheets for every year that you are in business. These worksheets will allow you to keep track of every dime you spend that is related to the maintenance and use of your home office and make it a cinch to fill out your Schedule 8829 tax form (for home office deductions).
Instructions
1. Create a new worksheet titled "Percentage Business Use" on your new Excel spreadsheet (right-click the tab at the bottom of the sheet to rename it). Name the headers of your columns as follows: "Area Used for Business (sq ft)," "Total Size of Home (sq. ft)" and "Percentage Business Use."
2. In the first column on the next line of your "Percentage Business Use" worksheet (cell A2), put the square footage of the room or rooms that you use exclusively for business (including any storage areas). In the next column (cell B2), put the total square footage of your house. Finally, in the last column (cell C2), type in a quick formula to calculate the percentage of your home that you use for business: "=A2/B2" without the quote marks. Cell C2 is an important number for reference purposes, so put it in bold type and format it as a percentage (right-click the cell and click "Format Cells").
3. Name a new worksheet within your spreadsheet "Deductions." This is where you will list every deduction related to your home and your home office directly (one item on each row).
4. Include the following items on your list of deductions: real estate taxes, mortgage interest (rent if this is an apartment), utilities, insurance, home office repairs and other expenses. Refer to IRS Form 8829 Expenses for Business Use for Your Home for more ideas of what to place on your home office deduction worksheet (see Resources).
5. Keep a running total on all of these expense items throughout the year. You will multiply cell C2 (percentage of home used for business) by each of the expenses that are related to your entire home to get the correct deduction for your home office.
6. Finally, name another worksheet "Depreciation of Home Office." (This and the next step is only if you own your home.) Name the first column (A) " Value of Home," then "Land Value" for column B, "Home Value Less Land" in column C and finally add a fourth column (D) named "Business Use Depreciation."
7. Call your county property tax office to find out the land value for your property. The fair market value should be based on the price you paid for the house or the appraised value of the house when you first started using the home for business (whichever is less--see Form 8829 instructions below under "Resources" for more information). Insert the following formula in the third column ("Home Value Less Land" cell C2): "=A2-B2" without the quote marks. This will give you the actual value of the house structure that you live in.
8. Finally, to complete this last worksheet, multiply cell C2 in the "Percentage Business Use" worksheet that you created in step two by cell C2 in this "Depreciation of Home Office" worksheet to get the value of your home that you can depreciate on your taxes for business use. So the formula in D2 will read "=C2*'Percentage Business Use'!C2" minus the outside quotes ('Percentage Business Use'! refers to the first worksheet you created).
Tags: your home, Percentage Business, your home office, home office, home office
