Jan 16, 2008

Office in Home Question

(The following is a response to an email question.)

QUESTION: I have a tax question and was told you were the best to ask. I am a contracted employee in North Carolina and I am in the process of setting up a home office in my spare bedroom. If I convert this bedroom into my work office can I somehow write part of that off of on my taxes? The room I am using is not detached from the home, it is my spare bedroom. Also, I will be working in it but not full time. Thanks for your time!

ANSWER: Great question! You are able to deduct certain expenses related to setting up the room for business purposes. Expenses such as mortgage interest, real estate tax, homeowners insurance, utilities are deductible. The expenses are inputted on Form 8829, Expenses For Business Use of Your Home. The amount of allowable expenses is based upon the square footage of the area used for business as a percentage of the total square footage living space of the home. The deductible expenses are in turn based on this percentage. Also, costs to upfit the room for business use are deductible.
Be aware that to be able to deduct any costs, the area must be used for business on a regular basis and is your principal place of business or is a meeting place for clients or customers. Even if you are not working in the room full time, using it regularly for business purposes should satisfy the requirements.

(For answers to more questions about business deductions and other issues, send an email to admin@irsmind.com)

3 responses:

Beckie January 20, 2008 at 6:01 PM  

Great information on a topic that many tax payers either leave off their returns because they dont know what they can deduct, or they do it incorrectly and invite an audit.

Anonymous,  January 20, 2008 at 6:26 PM  

Some taxpayers chose to depreciate the portion of the home office also. One key issue that they must remember is that when the home is sold, the amount which has been depreciated must be recaptured.

As a tax preparer, I would wholeheartedly have clients to deduct the home office expenses but would advise them to avoid the depreciation aspect of the deduction.

Those who rent and claim the home office cannot depreciate.

S. Raines

Tippy Taxes January 21, 2008 at 7:10 PM  

Great information. Most taxpayers don't quite understand what they can deduct and what they can't, this helps a lot.

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