DEFINITION of 'Home Office'
An office located inside the taxpayer's home that serves as the taxpayer's principal place of business. In order for home office-related expenses such as utilities and mortgage payments to be deductible, the taxpayer must use it as his or her primary place of business. This means that either the majority of the work for the business must be performed there, or clients must be met there on a regular basis.
"Home office" can also refer to the administrative headquarters of a large enterprise, such as the home office of a large corporation that is located in a particular city.
BREAKING DOWN 'Home Office'
Taxpayers who use home offices can deduct a proportionate amount of the rent, mortgage, utilities, property taxes and other related expenses that they incur by dividing the square footage of their home office space by the total amount of square footage in their residence. This fraction is then applied to all related expenses to arrive at the dollar amount of deductible expenses.