Home Office

Have a Home Office?

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, home repairs, and depreciation. They may also include improvements you have made to your home. The home office deduction is available for homeowners and renters, and applies to all types of homes, from apartments to mobile homes.

Home Office Use

The deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.

Day Care Use

If you use your entire home in your day care, then your square footage is 100%. However, from here, as you then must reduce this by the non-business hours that you did not work. There were 8,760 hours in 2008. Let’s assume you had children in your home an average of 50 hours per week. You would have actually provided child care services for 2,600 hours. You then divide this by the total hours in a year. In this example, your net result is about 30%. Thus, square footage usage (100%) x time usage (30%) gives you 30% business use of home percentage for last year. If your square footage usage was only 75%, you would then take 75% x 30%, and you would have 22.5% business use of home allocation. So, unless you are open 24/7 365 days per year, your business usage of home can never be 100%

Determine The Business Use Percent

The IRS says you can use square feet or any other reasonable method if it accurately figures your business use percentage. While TurboTax asks for square feet of the home and the office to calculate your home office percent on the IRS form this info is only identified as the area of your home and home office so you can use any unit of measurement you prefer, as long as it meets the IRS requirement of accurately reflecting your business use percentage. Some people choose other methods that is fine as long as you follow the IRS requirements

In Turbo Tax Home and Biz

In Home and Biz, the home office is under the screen your business then select Expenses.

Under enter your expenses select Home Office at the top of the screen.

The first screen will ask you if you have an office in home answer Yes. You then enter the home office.

The next screen will ask Tell Us More. If you own the home mark I owned the home.

Mark do all my business at home (if you have more than one office mark more than one office).

These questions help determine what screens to show. If you do not mark that you own the home then the mortgage screens will not show.

Continue to the next screen and enter the square footage of the entire home and the square footage of the office so the program can calculate your business use percent of your home. The next screen will ask what percent of the time you conduct business in the home. If you have another office outside the home then this will be less than 100%. You will then be asked to enter expenses for the entire home. You can enter the property tax, Mortgage interest, insurance and mortgage points and home office only. If you only had the home office for part of the year; enter the amount for part of the year as the total.

When you get to the end of the expenses there will be an expense summary screen. Continue past this screen if you are taking depreciation on your home. There will be a screen to enter the asset for depreciation including your home. This is also where you would add in any home improvements to depreciate. There will then be an asset summary screen where you can add another asset. The last screen is a Home Office Summary where you can add another Home office or Edit or delete the current one.

If you have two home offices, here’s how to put in the home mortgage interest under each office.

First home where the office was located: when it asks for the home mortgage, enter the two that you had for that home. Only enter the interest you paid for the months it was a home office and you were living in the home. The rest of the months of interest will be entered as a rental expense. (The amount of mortgage interest for the months that you lived in the home that is not used as a business expense, will flow automatically to the schedule A for itemized expenses.)

Second home office: when you enter this home office you will see that the first two lenders you entered are on the Mortgage Lender screen.  Do NOT edit these two lenders. Editing the lenders attaches them to the second home office paperwork. Select the Add button in the right hand corner to add the lender for the new home. If this is a new home purchase and you started the home office right away, enter the entire amount of interest paid. The rest of the interest will go automatically to the Schedule A for itemized deductions.

For additional information here is a link to the IRS site

http://www.irs.gov/businesses/small/article/0,,id=204169,00.html