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Home Office Deduction | Tax Tip of the Week | No. 82 March 2, 2011

Posted by bradstreetblogger in : Tax Tip, Taxes, Uncategorized , trackback

We often hear people say they do not want to take the home office deduction because it is an audit “red flag.”  However, this feeling may lead to missing out on a potentially significant and legitimate deduction.

Let’s look at the rules.  First, the area of the home used for an office must be used regularly and exclusively:
1. As the principal place of business (including administrative use);
2. As a place to meet with clients in the normal course of business, or
3. In connection with the business, if it is a separate structure not attached to the principal residence.
4. If you are an employee, the business use of the home must be for the convenience of the employer.  (Meaning no other office facility exists and is a condition of employment).  Also, note that the home office deduction will not be as significant as those who are self-employed because the deduction is taken on Schedule A subject to 2% AGI limitations.

If you meet these tests, you can then deduct the business percentage use of:
– Mortgage Interest
– Real Estate Taxes
– Casualty Losses
– Home Repairs/Maintenance
– Rent
– Utilities
– Homeowners Insurance
– Security Systems
– Other expenses including garbage removal, snow plowing, etc.
– Depreciation

Note: Choosing not to take the depreciation deduction is not an option.  It falls under the “allowed or allowable” rules.  It also means that when you sell your home you must recapture the depreciation.  This means you will have a taxable consequence on what would otherwise probably be a tax-free sale of the home.

I represented a client with a home office that was undergoing an IRS audit a couple of months ago.  Not once was the legitimacy of the home office deduction questioned.

Let’s talk about your situation and make sure you are not missing out.

As always, give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

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