3 tips for deducting your home office

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10/25/2016 | Author: Editorial Staff

In the September/October Texas REALTOR®, three tax experts offer advice to make your taxes audit-proof. Below are their tips for home-office deductions.

Don’t be afraid.
Many people are concerned about home-office deductions being a red flag for the IRS, but Sandy Botkin, attorney, CPA, and CEO of Taxbot, says that’s a myth: “A survey of people who claimed a home-office deduction versus those who didn’t found that the chance of getting audited was the same in both groups. If you’re eligible for the deduction, take it. It’s worth thousands of dollars.”

Keep it simple.
“The IRS has a simplified option for home-office deductions that a lot of people don’t know about,” says Allyson Baumeister, CPA at CliftonLarsonAllen LLP in Fort Worth. “It’s $5 per square foot for your home office up to 300 square feet—a $1,500 max deduction—and you don’t have to keep any records.”

If you’re worried that you’re leaving money on the table by figuring your home-office deduction this way instead of through utility bills and such, Jerry Love, CPA in Abilene, says don’t be: “I’ve found the $5 per square foot isn’t that far off from other ways to figure that deduction.”

Make sure your office is an office.
"The definition of a home office,” says Love, “is a place used exclusively for business. If you have a small house and do your contracts at night on the dining room table, that doesn’t count.” A guest room that doubles as an office is also not eligible for a home-office deduction, and neither is a music room with a desk.

Categories: Business tips
Tags: tax deductions, legal, home office


Rick DeVoss on 10/28/2016

To address Jane’s question:  You can take deductions for all the normal business expenses, even if you don’t have a home office.  Don’t confuse the various types of deductions which are allowed.  A deduction for licensing fees is different from a deduction for education expenses, and different still from a home office.  The office deduction is strictly for a room in the house which you have designated and use as an office.  You must keep records.  You can include a percentage of the utilities, taxes, and repairs, as well as depreciation.  > If you don’t have a tax consultant who does your tax returns for you, simply get the software to do your own, and it will guide you through all of these topics by asking you questions.  I have used and like TURBOTAX.  It seems to be simple to use and it accurately checks for all your deductions.  You need not worry about an audit just because you claim a home office.  The secret is to follow the rules.  The IRS even publishes pamphlets for you to read up on various subjects.  Study the topic.  ~The more you know about the tax laws, the less taxes you have to pay.

Kathy Fisher on 10/28/2016

Stuart Scholer, ABSOLUTELY AGREE! WE DO HAVE LIVES AS WELL. After 20 years at this business, I gotten to a point that I am NOT a POP TART agent. My home office IS an important place and deduction for me.

Yvette Kirkland on 10/28/2016

I’m conducting business right now on my back porch while watching the sunset. The IRS needs to get with the modern program.

Lupe Robbins on 10/28/2016

I have the same question as Dena Smith.

Stuart Scholer on 10/28/2016

Change it to what and what for?  If you don’t have a home office then don’t worry about it. Deduct your cell phone bill. Leave my home office deduction alone. I will die or retire soon and then you youngsters can do away with it.

DeeAnna Marek on 10/28/2016

I agree with Yvette.  We are conducting business in more areas than just at home and not in one specific room.  Someone should get this changed.

Jane Orchard on 10/28/2016

Is the $1500 home office deduction just for office space? What about your licensing fees, broker fees, and education, are those still deductable or are they included in the $1500 deduction?

Rick DeVoss on 10/27/2016

Just what is the definition of an “office”...?  The IRS is so far out of date that they have no idea of how a Realtor works out here in the real world.  Many agents, especially the younger ones, do most of their work with smart technology.  Very few have a traditional “office.”  How easy it is to work on your laptop while watching TV in your favorite chair.  ...Stuart’s description of his office space makes me envious.  Wish I could be that organized!  ...My suggestion is to claim your deduction on a small bedroom in your house.  ~If you don’t claim it, you won’t get a deduction.  (And if they disallow if, you are right back to paying the same tax you would have.)  ...If the wealthy in this country can claim enough deductions so that they don’t pay any taxes, then we ought to be able to get the small benefit from a room in our house which serves us as our only office space.  (I never drive to my Broker’s office, which is in another county.)

Stuart Scholer on 10/27/2016

I DO use 2 small rooms side by side.  They are appx 240 sq ft total. I have a printer, telephone, file cabinet, 2 eraser boards,  two desks and two credenzas, a bookshelf, a small breakfront for supply storage, 2 PC’s, and closet that doubles as as a supply cabinet and doc storage. This is a very productive space for me and I wouldn’t have it any other way. I do very little work on my phone or tablet except for basic communications. I don’t want my office to go with me everywhere I go. I just don’t need my Clients to think that I am going to be at their “beck and call”. I go to my Broker’s office less than once a month. I do a lot of transactions and I would not have it any other way. Please, please do not take my deduction away from me!   

Yvette Kirkland on 10/27/2016

With everything so mobile now we do business on phones, laptops, etc. they need to get rid of the designation space rule. I never sit in one place to do business at home.

Dena Smith on 10/25/2016

The CPA doesn’t mention if the simplified option includes depreciation and how that might affect things (depreciation recapture) after the property is sold. Would be interested in those details.

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The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

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