After the pandemic hit, I think most of us are working at home much more frequently. Remodelers are busy with a lot of types of home renovations, a lot of them for home offices. Is this a legitimate business deduction? Yes, actually it’s a pretty good one as long as you follow certain criteria. Listed below are the ins and outs of a home office for your construction business:
o If you are an employee you are not eligible for the home office deduction
o Use Form 8829 to report your home office deduction
o It is available to both homeowners and renters
o You can deduct mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent
o Home is defined as:
House, apartment, condominium, mobile home, boat or similar property which provide basic living accommodations
A separate structure on the property such as an unattached garage, studio, barn or greenhouse unless it is used exclusively as a hotel, motel, inn or similar establishment
o Two basic requirements for your home to qualify as a deduction
A portion of the home must be used exclusively for conducting business on a regular basis
• If you use an extra room to run your business then you can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business
Your home must be your principal place of business
• If administrative or management activities are conducted at the home and there is no other location to perform these duties then it meets the requirement
• If you conduct business outside of your home but also use your home to conduct business then you may still qualify
o A portion of a home that is used exclusively for conducting business on a regular basis but not used as the principal place of business, will qualify for a home office deduction if either patients, clients or customers are met in the home or there is a separate structure that is used exclusively for conducting business on a regular basis.
Calculating your home office expense deduction
• Simplified Method: Multiply the number of square feet used at the rate of $5 per square foot. Limited to a maximum size of 300 square feet and maximum deduction of $1500
• Regular Method: Deductions are based on the percentage of the home devoted to business use
o Involves determining the percentage of the home devoted to business use to deduct indirect expenses
o Direct expenses are deducted in full