Home Office Deduction Examples

If you have determined that you qualify for the deduction, and you know the factors that affect the size of the home office deduction, the following examples may help to illustrate the concepts we've discussed.

The importance of the business use percentage:


Calculating a business use percentage under two methods may help you realize greater savings:

Let's say Alice uses two of the ten rooms in her 1,600 square foot home exclusively for business.

Eight of the ten rooms in Alice's house are roughly the same size (about 150 square feet each); however her kitchen and living rooms are slightly larger (about 200 square feet each) than the other rooms - including the ones she uses for business.

Alice takes the time to get measurements on her house and rooms, and inputs that information into the CCH Business Owner's Toolkit calculator. She learns that she uses 18.75 percent of her home for business under the square footage method, compared to 20 percent under the rooms- used method.

What Alice now knows will help her to deduct an extra $12.50 for every $1,000 she spends on such things as utilities allocable to her business, roof repairs, and more.

Huge savings? No. But probably worth the few minutes it took to do a little homework.

The value of a home office deduction to renters:


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 percent.

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.)