The Tax Tutor

If you have an office in your home that you use for your business, you may qualify to take the home office deduction for some of your home expenses.  There have been alot of confusion and misinformation circulating about just how this deduction works.  I have a whole chapter on it in My Tax Tutor for Home Business, but here are some basics.

There are specific rules relating to this deduction.  Rules on who can take the deduction and who can’t.  Rules on what and how much can be deducted and when.  These rules apply to individuals, trusts, estates, partnerships and S corporations.  The only type of entity they do not apply to is a C corporations.  Not everyone who runs a business out of their home will qualify for the deduction.

Once you qualify, you must then properly choose and allocate the expenses and calculate the deduction.  There are direct expenses and indirect expenses.  Then there are expenses that need to be split between the home office deduction and your Form 1040 schedule A; expenses like your mortgage interest and property taxes.

There is depreciation of your home and if you sell it in the future, you will have to recapture the depreciation.  In other words, you can deduct it now, but you may have to include it in your income at the time you sell your house.

Once the total deduction has been calculated, it is still limited to the amount of net income your business has.  No income, no deduction.  In that case, some expenses are deducted elsewhere on your return and some are carried forward to a new year when, hopefully, you will have business income to which you can apply these expenses.

This entry was posted on Sunday, January 17th, 2010 at 8:30 pm and is filed under Home-Based Business Deduction. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.