Home Businesses Expenses
If you have a home business, there are many business expenses that are tax deductible.
Home Business Deductible Expenses
Certain expenses are deductible whether or not you use your home for business. If you qualify to claim business use of home expenses, use the business percentage of these expenses to figure your total business use of the home deduction. These expenses include the following:
- Real estate taxes
- Home mortgage interest
- Casualty losses
Other expenses are deductible only if you use your home for business. You can use the business percentage of these expenses to figure your total business use of home deduction. These expenses generally include (but are not limited to) the following:
- Home Office Supplies
- Home Office Furniture
- Computer Software and Subscriptions
- Security system
- Utilities and services
We have already given you an overview of what real estate taxes are (in case you have forgotten click the link). To figure the business part of your real estate taxes, multiply the real estate taxes paid by the percentage of your home used for business.
Like real estate taxes, we have given you an overview of what mortgage interest is. To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. You can include interest on a second mortgage in this computation. If your total mortgage debt is more than $1,000,000 or your home equity debt is more than $100,000 your deduction may be limited.
Home Office Supplies
Even if you don’t take the home-office deduction, you can deduct the business supplies you buy. Be sure to keep receipts for everything.
Office-furniture acquisitions provide a couple of choices. Deduct 100 percent of the cost in the year of the purchase via Section 179 or deduct a portion of the expense over seven years, also known as depreciation.
Computer Software and Subscriptions
For your home business you can depreciate the cost of computer software over three years or use the section 179 election and fully expense the software in the year you purchase the software.
The rules for deducting business and industry-related magazine subscriptions weren’t changed. You can continue to take the total costs as a full deduction in the year spent.
If you have a casualty loss on your home that you use for business, treat the casualty loss as a direct expense, an indirect expense, or an unrelated expense, depending on the property affected.
- A direct expense is the loss on the portion of the property you use only in your business. Use the entire loss to figure the business use of the home deduction.
- An indirect expense is the loss on the property you use for both business and personal purposes. Use only the business portion to figure the deduction.
- An unrelated expense is the loss on property you do not use in your business. Do not use any of the loss to figure the deduction.
You can deduct the cost of insurance that covers the business part of your home. However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for the tax year. You can deduct the business percentage of the part that applies to the following year in that year.
If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. To figure the deduction, multiply your rent payments by the percentage of your home used for business.
If you own your home, you cannot deduct the fair rental value of your home.
The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. For example, a furnace repair benefits the entire home. If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Repairs that do not benefit the office space are not deductible.
Repairs keep your home in good working order over its useful life. Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. However repairs are sometimes treated as permanent improvements.
If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. You also can take a depreciation deduction for the part of the cost of the security system relating to the business use of your home.
Example: If you install a security system for all your home’s windows and doors, the portion of your monthly maintenance fee that is allocable to the office are is a fully deductible operating expense. Furthermore, the business portion of your cost for the system is depreciable and thus, deductible.
Thus if your home office takes 15% of your home, you may deduct, subject to an income limitation, 15% of the maintenance fee and a depreciation deduction for 15% of the cost.
Utilities and Services
Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. However, if you use part of your home for business, you can deduct the business part of these expenses. Generally, the business percentage for utilities is the same as the percentage of your home used for business.
The basic local telephone service charge, including taxes, for the first telephone line into your home is a nondeductible personal expense. However, charges for long distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Do not include these expenses as a cost of using your home for business. Deduct these charges separately on the appropriate for or schedule.
If you own your home and qualify to deduct expenses for it’s business use, you can claim a deduction for depreciation. Depreciation is an allowance for the wear and tear on the part of your home used for business.
To learn more about Home Office Depreciation, click here.
Household expenses and repairs that do not benefit the office space are not deductible. However, a pro rata share of the cost of painting the outside of a house or repairing a roof is deductible. Costs of lawn care and landscaping are not deductible.