Breit Tax & Accounting Service, LLC The HomeOffice
Requirements • The home office must be: • Principal place of business, • A place to meet with customers, and • Related to your business, if the location is in a structure not attached to the home. • If you are an employee, your employer must require the business use of your home.
Calculations • Consider direct and indirect expenses. • Direct expenses are those that pertain exclusively to the home office. • Indirect expenses are those that pertain to the entire residence. • Allocate indirect expenses between the business and nonbusiness portions of the home.
Limitations • Your net income from business. • For an employee, this is wages less expenses. • For a self-employed person, this is the net income shown on Schedule C.
Deductions • If there is a loss, the IRS does not allow a deduction and the expenses are carried forward. • The IRS allows three deductions in full: • Mortgage interest, • Real estate taxes, and • Casualty or theft losses. • Once the otherwise deductible expenses have reduced net income, you can deduct other business expenses. • If you go out of business before using up any potential deductions, these amounts are lost.
Sale of Property • When you sell the home that had been the location of your home office, some of your gain may be taxable. • The depreciation the IRS allows you to claim on your home office is subject to taxation. • You can avoid some potential tax situations if you are renting your principal residence to your employer.
Planning Considerations Home office expenses can represent a significant dollar amount in computing your tax liability. As a tax professional, I’m available to help you through the process.