Self-Employed Home Office Deductions for 2018
If you create a home office in 2018, you may be able to take tax deductions for some of your current housing expenses. If you use a dedicated home office regularly, then you should check out these home office deductions.
#1: Home Office Deductions Criteria
Eligibility for home office deductions requires that you use your home exclusively and regularly for your work. Exclusive use means that the home office area is used only for business and for no other reasons. This entails either being used as a primary place of business or being used as a meeting place during the average day of the individual taxpayer’s work.
Regular use means you conduct business in your home office on a consistent basis rather than an infrequent one.
#2: The Expenses That Will Be An Included Deduction
There are two groups of home office expenses, direct or indirect. If the expense is exclusively related to your work, you can have a full deduction. An indirect expense involves the entire property.
These expenses can include:
- Rent for the property
- Paying for the utilities
- Insurance for the property
- Upkeep and repair costs
- Casualty losses
- Mortgage interest
- Taxes on the property
- Depreciation
#3: What Percent Of Your Home Is Deductible for Indirect Expenses?
The first step is to determine the square footage (length multiplied by width) of your home office space. Compare this to the square footage of the rest of your home. Then divide the home office area by the whole house/apartment. The percentage of your home will then be used to determine the amount of indirect expenses you can receive as a deductible.
#4: Home Office Deduction Limits
Your net income from you at home business limits the home office deductions you can receive. If the deductions are past this maximum value, they carry over into the next year’s taxes. Essentially, you cannot use home office deductions to create a loss for your business.
#5: Calculating Home Office Deductions
To calculate the home office deduction, you’ll need to know:
- Expenses are for the home office
- Whether those expenses are directly or indirectly related to the home office
- The business use percentage of the home office
- The limitation on the maximum amount of the home office deduction.
If you use the home office space for only part of the year, be sure to use only expenses for the period of time when the space was in use.
#6: Keeping Good Records
Keep your home office deduction documents with copies of your tax returns. Make sure you document:
- The total measurements of your entire home and the portion you use for your home office.
- Documents of expenses claimed for your home office deduction, rent, repairs, etc.
- Documents proving that the area is used repeatedly and solely for business purposes.
If you have a home office in 2018, you will want to keep good records to help offset the taxes you pay. When buying a home with a home office in mind, be sure that you will have dedicated space for the office in order to take the deduction. If you wish to purchase a home with home office space or have questions about other home office deductions, please give us a call.