The tax law permits you to deduct home office expenses if you "regularly and exclusively" use an area of your home as either:
These restrictions mean that no personal activities can be conducted from a deductible home office. If you qualify to take write-offs, you can deduct a proportionate share of expenses including mortgage interest, depreciation deductions, utilities, insurance, security systems and repairs.
The IRS often challenges home office deductions. To protect yourself in case of an IRS audit, keep good records. It also helps to take photos of the room to help prove it was used for business purposes.
Here are a few more tips concerning home offices.
Consult with your tax advisor if you have any questions about home office tax breaks.
Years ago, the IRS issued regulations on home sales that allow people who work out of their home offices to pocket more of the home sale gain exclusion. For single taxpayers, the maximum eligible amount is $250,000 and for married couples filing jointly, it is $500,000.(Treasury Decision 9030)
However, this tax break is subject to a recapture provision. You must forfeit the exclusion for the part of the gain attributable to depreciation deductions allowed for the home office after May 6, 1997. Consult with your tax advisor for more details.
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