If you use a portion of your home regularly and only for your business purposes, you can deduct a part of the operating expenses and depreciation of your home on your tax return.
Qualifying for a home office deduction means the owner must meet two tests. First, the home office must be the primary place of business for the activities of the business. It is not a requirement that the activity be full-time. A home office is determined to be a primary place of business if it is used for the majority of managerial or administrative purposes such as scheduling appointments, ordering supplies and keeping records. There can be no other fixed location for such activities.
Second, the space used must be used regularly and exclusively for the activity. You are not required to dedicate a full room to the activity but the space allotted cannot be used for personal purposes. In 2007, the United States Tax Court did hold that keeping some personal papers in a home office will not void the exclusive use test.
An office in the home deduction cannot exceed the gross income derived from the home-based activity. Any unused losses can be carried forward until used.
Will the deduction of a home office cause the IRS to audit my tax return? While there is no statistical evidence to support a such a claim, you should be aware of the requirements to claim an office in home deduction and keep all the necessary paper work and documents to use a home office.
The following is a list of pro-ratable deductible items which can be used on Form 8829: mortgage interest, real estate taxes, insurance, repairs and maintenance, utilities and of course depreciation. If you have doubts about whether you can accurately prepare your own return using this deduction, retain the help of a tax professional or tax resolution firm. The deduction can help reduce your tax liability, but if prepared incorrectly, you will be AUDITED.