ABA Family Legal Guide

Home Ownership

The Financial Side of Home Ownership

Tax Considerations

How can I qualify for a tax deduction on a home office?

If you run a business from your home, your office expenses are probably deductible. Depending on the size of your home and how much of it is designated as your office, the deduction can be significant enough to justify the extra effort needed to qualify. If your office meets the standards spelled out by the IRS, you can deduct the cost of repairs, furniture, computers and office equipment, extra telephone lines, and other business-related expenses. You can also deduct a proportional share of your home's depreciation (ordinary wear and tear), utility bills, and insurance. Although you can no longer deduct the entire cost of a desk or computer the first year, you may claim accelerated depreciation if you use the item more than 50 percent of the time for your job. This allows you to claim most of the deduction the first two years.

Be aware, though, that you can deduct no more than your business actually generated. Also, the deduction lowers the home's basis, the figure used to calculate capital gains. This would be a problem, under current tax law, only if you generated a profit of at least $250,000 on the sale, so taking a home office deduction may not cause tax problems for most people.