Determine the Business Percentage Use of your Home
to calculate the amount you can deduct for Home
Office Expenses

Home office expenses are based on a percentage of the total
area of your home!  To find the business percentage, compare
the size of the part of your home that you use for business to
your whole home.  Use the resulting percentage to figure the
business part of the expense for operating your entire home.



If you are eligible to claim the home office deduction, you are
required to determine the percentage of personal and business
use of you home.  The percentage that is determined will be
applied to your home office related expenses to determine your
actual deduction. 


Determining Business Percentage
The IRS states that you can use any "reasonable" method to
determine the business percentage.  The two commonly used
methods for figuring the percentage are:
 

  1. Divide the area (length multiplied by the width) used for
    business by the total area of your home.

    Example:  You determine you have a home office that is
    250 square feet (25 feet x 10 feet).  You home is 2000 sq
    feet.  Your business percentage use is 12.50% (250 sq feet /
    2000 sq feet).
     
  2. If the rooms of your house are all about the same size, you
    can divide the number of rooms used for business by the
    total number of rooms in your home.

    Example:  You use one room in your house for your
    business.  Your house has 4 rooms all about equal size. 
    Your office is 25% (1/4) of the total area of your home.  Your
    business percentage is 25%.  Be aware that you might not
    be allowed to use this method if the percentage you
    determine is greater than what you would get using the
    square footage method.  You should only use this method if
    all the rooms in your house are approximately the same
    size.

Allocating Expenses to Business Use
Once you determine the business user percentage, you can
calculate your deductions.  Let's assume that the business
percentage use is 15% of the total home.  Using the example
below, the home office deduction would be determined as follows:

 

Total

 Office Residence
Mortgage interest   $
Real estate taxes  
Utilities
HOA fees
Depreciation -
     home
Depreciation -
     furniture

Total                      $		 11,000                   $
  4,000
  1,500
  2,400
  6,500

     900


26,300                   $		  1,650                    $
    600
    225
    360
    975

    135


 3,945                    $		  9,350
 3,400
 1,275
 2,040
 5,525

    765


22,355


Part-Year Use
You cannot deduct expenses for the business use of your home incurred
during any part of the year you did not use your home for business
purposes. 

Example:  Mike Guernon began using part of his home for business on
July 1, 2007, and he meets all the tests from that date until the end of the year.
Mike must only use the expenses incurred during the last half of the year in
figuring out his allowable deduction. 


Note that the amount of the deduction you may use is limited to the
amount of income your home business generates.  That topic is
covered in the Home Business Deduction Limit section.



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