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Employee Business Expenses

Business Use of Home

If you used your home for your job or business, you may be able to deduct expenses related to the part of your home that was used for business.

Principal Place of Business

You must determine where the principal place of your business is before deducting business use of home expenses. The physical location of your trade and business where the most important activities are performed, and the most time is spent, is generally the principal place of your business. However, your home will also qualify as your principal place of business if both of the following are true:

  • You use a portion of your home regularly and exclusively for administrative or management activities of your trade or business.
  • You have no other fixed location where you conduct substantial amounts of administrative or management activities.

Requirements to Deduct Expenses

To deduct any business-related home expenses, you must use a portion of your home regularly and exclusively for either of these purposes:

  • as the principal place of business for your trade or business
  • as the place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business

Similarly, to deduct a structure that is separate and not attached to your home, it must be used in connection with your trade or business.

Unless your home is used as a day care or as a storage place for inventory or product samples related to your business, any area of your home that is used for both personal and business purposes does not qualify for the business use of home deduction.

If you are an employee, additional rules apply:

  • Your home must be used for the convenience of your employer.
  • You cannot rent any part of your home to your employer and use the rented part to perform services as an employee.

Qualifying Expenses

Only certain expenses related to the use of your home qualify as an expense for the deduction:

  • Real estate taxes
  • Deductible mortgage interest
  • Rent
  • Casualty losses
  • Utilities
  • Insurance
  • Depreciation
  • Maintenance and repairs

When figuring the amount of expenses you can deduct, only include amounts that are solely attributable to the portion of your home that was used for business. Use either of the following methods to figure the percentage:

  • Divide the square footage of the room used for business by the total square footage of the house.
  • If the rooms in the house are all near the same size, divide the number of rooms used for business by the total number of rooms in the house.

Simplified Deduction Method

For 2013, the IRS has started using an simpler Safe Harbor method for figuring the home office deduction. Instead of claiming actual expenses, you can claim $5 per square foot of home office space, up to a maximum of 300 square feet, for a maximum deduction of $1,500. The alternate method is selected on Schedule C.

For more information, see IRS Publication 587.