Home Office Expense

What is 'Home Office Expense'

Home office expenses are expenses incurred from the operation of a business or the performance of employment-related activities within a primary residence.

BREAKING DOWN 'Home Office Expense'

Home office expenses allow individuals to deduct some housing expenses such as utilities, interest paid towards the property’s mortgage and property taxes on their annual tax return. Any services or utilities that are used exclusively for the business purposes can be fully deducted. This includes offices supplies, phone lines and computer equipment. The amount of deductions permitted will depend on several factors, including how a homeowner files their return and their earnings, but most will be able to claim several items as expenses as long as they are incurred during the normal course of business.

According to the Internal Revenue Service (IRS), a home will only qualify as a home office if there is a dedicated space for regular and exclusive use, and that space must be the principal place of your business. The calculation used to determine the portion of utility and mortgage related costs involves dividing the square footage of the office space within the home by the home’s total square footage.

Examples of 'Home Office Expense'

As an example, consider a freelance writer who operates their own business out of their home. They have a dedicated office space which is approximately 200 square feet, a cell phone that is only used for work related calls and a subscription to a magazine that provides editorial leads to writers. All these items are tax deductible as home office expenses, including the 200 square feet of the writer’s house, since that room is used for business purposes. Additionally, the writer can deduct the ink that they use to print contracts out, the full cost of the all-in-one printer that they had to purchase to be able to send those signed contracts in and any industry related training they complete.  

There are a variety of expenses that can be deducted when a person works out of their home, whether it be as a remote employee or because they are self-employed. A certified tax specialist can review available deductions and make sure that all items that are being claimed are valid.

For instance, if this freelance writer didn’t have a dedicated office space and instead worked out of the coffee shop around the corner from their house every day, they wouldn’t be able to claim the utility and mortgage associated costs as part of their home office deduction. There may be additional deductions available to them, like the coffee and donut they purchase each day while working out of the shop.