Yes, you can deduct expenses related to the business use of your home, but you must meet specific requirements and limitations as outlined in the Internal Revenue Code and IRS publications.
- Exclusive and Regular Use: To qualify for the deduction, you must use a specific part of your home exclusively and regularly for your trade or business. This means that the area must be used only for business purposes and not for any personal activities. However, there are exceptions for storage of inventory or product samples and for daycare facilities, which do not require exclusive use.
- Principal Place of Business: The business part of your home must be your principal place of business, a place where you meet or deal with clients or customers in the normal course of your trade or business, or a separate structure not attached to your home used in connection with your trade or business.
- Deduction Limitations: The deductions for the business use of your home are subject to limitations. According to § 280A(c)(5), the deductions allowed for the taxable year cannot exceed the gross income derived from the business use of the home, reduced by other business expenses not related to the use of the home.
- Safe Harbor Method: The IRS provides an optional safe harbor method to simplify the calculation of the deduction. Under this method, you can deduct $5 per square foot of the area used for business, up to a maximum of 300 square feet. This method reduces the administrative burden of calculating and substantiating actual expenses.
- Reporting Requirements: If you use your home for business and file Schedule C (Form 1040), you report the entire deduction for business use of your home on line 30 of Schedule C. If you use your home in your farming business, you report the deduction on line 32 of Schedule F (Form 1040). For partners, unreimbursed partnership expenses are reported on Schedule E (Form 1040).
- Recordkeeping: You must keep accurate and complete records to substantiate your deductions. This includes maintaining records of the expenses related to the business use of your home, such as mortgage interest, insurance, utilities, repairs, and depreciation.
In summary, you can deduct expenses related to the business use of your home if you meet the exclusive and regular use requirements, use the area as your principal place of business or for meeting clients, and adhere to the deduction limitations. You can choose to use the simplified safe harbor method or calculate actual expenses, and you must report the deduction appropriately on your tax return while maintaining proper records.
Sources:
Publication 587 (2023)
Publication 334 (2023)
Publication 1518 (11/2012)
§ 280A. Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc.
Rev. Proc. 2013-13
Publication 911
