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- Includes items such as desks, chairs, computers, couches, lamps, printers, scanners, etc. that you put into your home office. Even if you purchased this equipment prior to beginning your business, you can still take the deduction based on the fair market value at the time that you transfer the assets into the business.
Section 179 allows you to deduct up to $100,000 for business furniture and equipment in a single year as opposed to depreciating it over the life of the asset. This can help reduce your tax liability considerably.
- If you own your home the percentage of square feet used for the office can be deducted. For example if you owned a 2,000 square foot home and you used 400 feet for your office, you can deduct 20% of the acquisition cost (building, not land) and improvements to your home office over a 39-year period. If you rent, you can deduct a portion of your monthly rental cost.
If you sell or exchange your home, you may be able to exclude up to $250,000 ($500,000 for certain married persons filing a joint return) of the gain on the sale or exchange if you meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you met both the following tests.
1. You owned the home for at least 2 years (ownership test).
2. You lived in the home as your main home for at least 2 years (use test).
If you were entitled to take depreciation deductions because you used your home for business, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. If you can show by adequate records or other evidence that the depreciation deduction allowed was less than the amount allowable, the amount you cannot exclude is the amount allowed.
The home office rules are complicated and should be discussed with your tax professional.
- You can deduct a percentage of your gas, electric and water bill, homeowners or renters insurance and lawn maintenance and repairs done to your home. A second phone line would be completely deductible, however your personal phone bill is not. If you used Caller ID or Call Waiting so that customers can get through on the line, then that portion of your personal phone bill is deductible.
- Please take a picture of your home office and keep it with your accounting records. If you move to a new location, this is the only proof that you will have for the IRS that you did in fact have a home office.
- If you are parking your truck someplace other than your home office, the round-trip mileage from your home to the truck is deductible at a rate of 37.5 cents/mile, plus tolls, interest on the business portion of your car (meaning that if you use your car 90% for business, 90% of the interest would qualify) and parking. Or if you prefer, you can keep track of your total auto expenses and deduct the business portion of the total.
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