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A small business owner who runs business out of their home will be temped to “write-off” many of their household expenses. But they need to be aware of what is deductible and what is not? If you use part of your home for business purposes only, then you can take a home office deduction for the expense related to that area of the house. Expenses that can be deducted include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, repairs and depreciation.

To claim a business or home office tax deduction, you must use part of your home:

• Exclusively and regularly as your principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of your business, or in connection with your trade or business where there is a separate structure not attached to the home; or
• On a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.
• If you work as an employee you can claim this deduction only if the regular and exclusive business use of the home is for the convenience of your employer and the portion of the home is not rented by the employer.

“Exclusive use” means a specific area of the home is used only for trade or business. “Regular use” means the area is used regularly for trade or business. Incidental or occasional business use is not regular use.

Non-business profit-seeking endeavors such as investment activities do not qualify for a home office deduction, nor do not-for-profit activities such as hobbies.

These requirements are discussed in greater detail in Publication 587, Business Use of Your Home.

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