In most circumstances, taxpayers may not deduct items related to their homes, such as real estate taxes, mortgage interest, rent, maintenance, depreciation, property insurance, or utilities as business expenses. Some taxpayers regularly use part of their homes for business. While the deductible amount of these types of expenses may be limited, taxpayers may deduct expenses related to the business use of part of their home if they meet certain requirements.
For part of a home to qualify to deduct expenses for business use of a home, part of the home must be used:
- Exclusively and regularly as your principal place of business;
- Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business;
- In the case of a separate structure which is not attached to your home, in connection with your trade or business;
- On a regular basis for certain storage;
- For rental use; or
- As a daycare facility.
To meet the standard for “exclusive use,” a specific area of the home must be used only for a trade or business. This business area may be a room or other separately identifiable space but does not need to be permanently partitioned. If the area is used both for business and for personal purposes, the requirements of the exclusive use test have not been met.
For example, Art is an accountant who uses the 2nd bedroom to prepare tax returns for clients. Art’s family also uses the 2nd bedroom as an exercise room. Because the 2nd bedroom is not used exclusively in a trade or business, it cannot be claimed as a deduction for business use. If the area in question is used for a storage area of inventory or product samples, or as a daycare facility, the exclusive use test does not apply.
Storage of inventory or product samples
If part of a home is used for storage of inventory or product samples, expenses for the business use of the home may be deducted without meeting the exclusive use test. Yet, the following tests must be met:
- Selling products at wholesale or retail is the taxpayer’s trade or business.
- Inventory or product samples are kept in the home for use in the trade or business.
- The home is the only fixed location of the trade or business.
- The storage space is used on a regular basis.
- The space is a separately identifiable space suitable for storage.
We’ll look at other requirements related to qualifying for the deduction in Part Two.
If you operate a home business and have questions about deducting its use to the full extent allowable by the law, call The Gartzman Law Firm at (770) 939-7710. Use our simple contact form to arrange a free meeting with a qualified tax professional today.