Home Business Percentage Use
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.
Home business percentage use example 1: 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.
Home business percentage use example 2: 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.
If the rooms in your house are not equal or approximately equal in size, compare the number of square feet of space used for busines with the total number of square feet in the home and then apply the resulting percentage to the total deductible expenses.
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:
|Real Estate Taxes||$4,000||$600||$3,400|
|Depreciation - Home||$6,500||$975||$5,525|
|Depreciation - Furniture||$900||$135||$765|
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.
Home business percentage use example 3: Mike Guernon began using part of his home for business on July 1, 2013, 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.