Determining Your Partial Deductions

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If you meet the aforementioned conditions, you will be able to claim your home office as a deduction . Now you will be able to claim deductions that are directly related to running any business, but you can list indirect expenses than can apply to your home. The IRS permits you to partially claim the following indirect expenses.

• Community or condominium association fees

• Homeowners insurance

• Housekeeping

• General repairs (i.e., air conditioning)

• Mortgage interest

• Real estate taxes

• Rent

• Security system

• Trash collection

• Utilities

How do you figure the amount of indirect expenses that you can claim under your home office deduction? With a formula, of course! It's not hard so don't get too jittery.

For the first step, you will need to determine the percentage of your home dedicated to your home office space. Use this formula:

Square Footage Method

Example:

Suppose you run a freelance editorial business from a spare bedroom in your home. The size of your office is 10' x 10' or 100 square feet. The total square footage of your home is 3,000 feet.

You can deduct 3 percent of your home's indirect expenses as a home office deduction. For instance, you can deduct 3 percent of your mortgage interest or 3 percent of your real estate taxes. Using IRS Form 8829 “ Expenses for Business Use of Your Home (PDF), follow the list of step-by-step calculations to determine the amount you will be allowed to deduct. According to Form 8829, you are first permitted to deduct mortgage interest, real estate taxes, casualty losses, and anything that is carried over from the previous year. Then you can deduct such items as utilities, maintenance and repairs, trash removal, and security systems if you still show a profit. If you're fortunate enough to still be showing a profit, you can deduct the depreciation on your home office. We would like to stress that before deducting expenses under the home office rules, a thorough review and evaluation should be made of how it will relate to the exclusion of the gain on the sale of your primary residence.

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