Let's compare two neighbors, Paul and
Alexandra, who both use an office in their home
exclusively for business. Because Paul and
Alexandra both use one bedroom of their home for
an office and their homes are similar, their
business use percentage is similar too: about 15
Let's assume, however, that Paul owns his
home and pays a mortgage while Alexandra rents.
Paul's monthly mortgage payment is $800, but
only $400 of that amount represents interest
payments. Assuming that Paul pays $1,000 a year
in property taxes, Paul gets a deduction of
about $870 for his mortgage interest and
property taxes [($400 x 12) + $1,000] x .15.
Alexandra, whose rent is $800 a month, gets
to deduct the business percentage of her entire
yearly rent, or $1,440. [($800 x 12) x .15]
The home office deduction is much more
attractive to Alexandra than Paul. This is
especially true in light of the fact that Paul
could deduct his mortgage interest and property
taxes even if he didn't have a home office.
Alexandra could not deduct any portion of her
rent without the home office deduction.
(Paul and Alexandra do get other deductions
for things like utility expenses, but we'll
assume those would be similar since their houses
are so similar.)