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Common Home Office Tax Questions, Part 1

written by: JMendes•edited by: Jean Scheid•updated: 6/28/2011

In part one of Common Home Office Tax Questions, we'll look at the home office itself; what the IRS considers to be a home work area and what tax deductions are allowed.

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    Can I deduct my home office?

    Business owners, freelancers and employees that telecommute can usually claim their home office on their federal taxes and deduct a portion of the home's expenses. Homeowners and renters can both qualify for this deduction; the IRS recognizes houses, condos, apartments and free-standing structures as home business sites.

    To claim your home office on your federal taxes, your home office must meet the two home business qualifications:

    Exclusive Use means that there is a specific area within your home that is used exclusive to run your business and no other activities occur there. This area can include a room or a section of an area portioned off for business activity, a space used for inventory storage, or a separate free-standing building on the property such as a storage shed, garage or studio.

    However, if you regularly meet with clients in the living room or write freelance copy on the couch in the family room, your home office will not qualify as an exclusive place of business.

    Regular Use means that you use your home as a business on a regular schedule; anywhere from a few hours a week to daily use can qualify as long as you can show that the home is the primary business area. Business owners who provide services outside of the home, for instance carpet cleaners, construction contractors and home repair providers can also qualify if they manage their business in their home.

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    What if my home office doesn't qualify?

    There are two exclusions to the exclusive and regular use rules; business storage and home daycare. Your home can be considered a business storage space even if you keep the inventory in an area used for other things, such as a basement or garage.

    Home day care businesses are excluded from the exclusive use rule since the government recognizes that clients will need to access areas of the home that are also used by family members, such as bathrooms and kitchens.

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    How can I prove that I use my home as my place of business?

    Sometimes the IRS will require proof that you have a home office. Keep meticulous records of client interactions that occurred in the home, save examples of business mail that is addressed to your home, have a separate business telephone line installed in the home and have business stationary and business cards that carry your home address.

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    What home office expenses am I allowed to write-off?

    If your home office qualifies as a business, you are allowed to write off a portion of the expenses that occur from running the home. Home office deductions can include: utilities, mortgage interest, rent and real estate taxes.

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    How much can I deduct?

    Taxpayers can calculate their home office deductions by using IRS home business expense Form 8829.

    To obtain the necessary home office tax forms and find out more about home office rules and regulations, visit the Internal Revenue Service website.