The home office deduction is used by both small businesses and employees, which allows a deduction for using part of your home exclusively and regularly for business purposes. This allows a percentage of certain expenses to become tax deductible or at least more tax favorable such as mortgage interest, property taxes, rent, utilities, homeowners insurance, repairs and maintenance, and depreciation. The downside is that it can be both complex and time-consuming when taking this deduction.
The good news is that there is simplified method for deducting home office expenses, which began with 2013’s tax year. The newer method allows taxpayers to deduct $5 per square foot of business use up to a maximum of 300 square feet for a total deduction of $1,500.
Although this new method is simplified, you need to determine if it makes sense to use the simplified form or the traditional method of calculating home office expenses. You also want to make sure that you meet the criteria for having a qualified home office as these rules have not changed. Additionally, the rules for employees using a home office are more complex and need to be followed strictly.