Generally personal expenses such as mortgage interest, real estate taxes, insurance, utilities and maintenance are not deductible as a business expense. However, if you are self-employed (small business owners, real estate professionals, contractors, etc.) and work from home, you may be eligible for the home office deduction.
The benefits of a home office include taking a tax deduction and converting non-deductible commuting expenses to deductible business mileage from home to your office outside of your home.
Note: It is important to note that the deduction applies to those who rent as well.
To claim the home office deduction, two requirements are necessary:
Regular and Exclusive Use - You must use a specific area in the home on a regular basis to conduct business. The area could be a room or a space within the room designated for business. The space must also be used exclusively for business. If the area is used both for business and personal, it is not considered exclusive.
Example: A real estate agent writes contracts and conducts administrative activities on the dining room table. The family also uses the dining room to eat dinner. This is not considered exclusive use.
•Principal Place of Business - You must show that you use your home as your principal place of business. It is possible to have more than one business location. However, to take a deduction for the home office, your home must be a place where you conduct substantial administrative or management activities of your business.
The IRS defines administrative and management tasks as:
• Billing customers, clients, or patients.
• Keeping books and records.
• Ordering supplies.
• Setting up appointments.
• Forwarding orders or writing reports.
Commuting miles = Business miles = Tax Deduction
If your home office qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business.
Question for you: If you have an office downtown where you spend 40 hours a week, can you claim that you have an office in your home that qualifies as a principal office if you spend only 12 hours a week working in the home office? If you said no, you are not alone. But you would also be wrong.
With the administrative or management rule, you can have your principal office in your home with 12 hours of work even when you work at your other office for 40 hours.
Note: The home office deduction can be taken for sole proprietors, LLC and corporations.