It sounds like you are asking about the Home Use for Businesss tax deduction. Because most home businesses are run from a portion of a home, not the
entire structure, most of the deductible expenses are limited to the
percentage of your home actually used for business.
There are two popular methods for figuring out business percentages:
Area method - Divide the area used for business by the total area
of your home. If your home office is 150 square feet, and your home is
1500 square feet, your business percentage is 10%.
Rooms method - Divide the total number of rooms by the number of
rooms used for business. If your home has 8 rooms and 1 is used for
business, your business percentage is 12.5%. It is important to note
that this method should only be used if the rooms in your home are all
nearly the same size.
For more information, including deduction limits and filing tips, read the Business.gov article 'How to Claim the Tax Deduction for Business Use of Your Home'
BizResearcher | Window Shopper |
11/23/2010 - 8:45 am
Show Replied Text…
It sounds like you are asking about the Home Use for Businesss tax deduction. Because most home businesses are run from a portion of a home, not the
entire structure, most of the deductible expenses are limited to the
percentage of your home actually used for business.
There are two popular methods for figuring out business percentages:
Area method - Divide the area used for business by the total area
of your home. If your home office is 150 square feet, and your home is
1500 square feet, your business percentage is 10%.
Rooms method - Divide the total number of rooms by the number of
rooms used for business. If your home has 8 rooms and 1 is used for
business, your business percentage is 12.5%. It is important to note
that this method should only be used if the rooms in your home are all
nearly the same size.
For more information, including deduction limits and filing tips, read the Business.gov article 'How to Claim the Tax Deduction for Business Use of Your Home'
Before taking a tax credit for business use of your home, be sure you understand the ramifications. When you sell your home, you will need to pay taxes on the deduction for each year you claimed it. That can easily add up to thousands of dollars in taxes you must repay when you sell.
You will also not be able to use your home office for any other purpose or use your office equipment for any purpose other than business. For instance, if your only computer is in your office, you would not be able to use it for personal business, nor could your children use it to do homework. You get the idea.
In some cases, taking a deduction may not be worth it in the long run.
Before taking a tax credit for business use of your home, be sure you understand the ramifications. When you sell your home, you will need to pay taxes on the deduction for each year you claimed it. That can easily add up to thousands of dollars in taxes you must repay when you sell.
You will also not be able to use your home office for any other purpose or use your office equipment for any purpose other than business. For instance, if your only computer is in your office, you would not be able to use it for personal business, nor could your children use it to do homework. You get the idea.
In some cases, taking a deduction may not be worth it in the long run.
There is no tax credit for business use of your home it is a deduction. You will not need to pay taxes on the deduction for each year you took the deduction.
You will pay recapture tax on the amount of depreciation you deducted so you may want to consider whether or not you will want to depreciate if you are a homeowner.
All other home office expenses including rent are deducted according to business use percentage and not subject to any sort of recapture. If your rooms are not of similar size you should not use the room method.
This is one of the topics covered in my Free Tax Tips Videos
Before taking a tax credit for business use of your home, be sure you understand the ramifications. When you sell your home, you will need to pay taxes on the deduction for each year you claimed it. That can easily add up to thousands of dollars in taxes you must repay when you sell.
You will also not be able to use your home office for any other purpose or use your office equipment for any purpose other than business. For instance, if your only computer is in your office, you would not be able to use it for personal business, nor could your children use it to do homework. You get the idea.
In some cases, taking a deduction may not be worth it in the long run.
'Before taking a tax credit for business use of your home, be sure you understand the ramifications. When you sell your home, you will need to pay taxes on the deduction for each year you claimed it. That can easily add up to thousands of dollars in taxes you must repay when you sell.'
Sage advice.
My accountant warned me off of this deduction because of this reason and this reason alone. After I sold my house, I was really happy I did it, as it would have cost me a few hundred in extra taxes that year, more than negating the benefit I got in prior years. Unless you're planning on staying put, you probably ought to look elsewhere for deductions.
chuckblakeman | Window Shopper |
11/25/2010 - 6:30 am
Show Replied Text…
Before taking a tax credit for business use of your home, be sure you understand the ramifications. When you sell your home, you will need to pay taxes on the deduction for each year you claimed it. That can easily add up to thousands of dollars in taxes you must repay when you sell.
You will also not be able to use your home office for any other purpose or use your office equipment for any purpose other than business. For instance, if your only computer is in your office, you would not be able to use it for personal business, nor could your children use it to do homework. You get the idea.
In some cases, taking a deduction may not be worth it in the long run.
BizResearcher said:
'When you sell your home, you will
need to pay taxes on the deduction for each year you claimed it. That
can easily add up to thousands of dollars in taxes you must repay when
you sell.'
Actually you would only pay taxes if you DEPRECIATED the part of the house that is your office, and then only on that portion. And you can avoid this, just don't take a depreciation deduction.
The other home office deductions that are available to you are much more valuable, anyway - Direct expenses like repair or maintenance (painting the office, a second phone line, the cost of long distance calls from any phone; Indirect expenses - the cost of maintaining and repairing the entire home (deduct the percentage that represents your office square footage), your utilities, homeowners insurance, association fees, security; Interest and Property Taxes - interest on your mortgage, taxes on the whole home (you get these deductions personally, but when you convert a percentage of them to business, they also reduce your self-employment income, which also reduces what you owe in Social Security taxes.
I can't think of any situation under which it would be a bad idea to take home office deductions of this nature. Skip the depreciation if you want (I would take it), but certainly take all the rest. Otherwise you're just paying taxes you shouldn't be paying.
NicoleD | Former Moderator | 11/22/2010 - 6:56 am
BizResearcher | Window Shopper | 11/23/2010 - 8:45 am
jbeidle | Contributor | 11/24/2010 - 8:24 am
finaiddude | Performer | 11/24/2010 - 12:01 pm
chuckblakeman | Window Shopper | 11/25/2010 - 6:30 am
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