So you are self employed, and use part of your home for business. If you use space regularly and exclusively to conduct business you can deduct certain expenses. Starting 2013 tax year there are two ways of doing it: Simplified option where taxpayer takes $5 per sq foot all inclusive ( up to 300 sq feet) or regular method -calculate a percentage of your rent or mortgage, utilities, insurance devoted to your business use of the home.
|Simplified Option||Regular Method|
|Deduction for home office use of a portion of a residence allowed only if that portion is exclusively used on a regular basis for business purposes||Same|
|Allowable square footage of home use for business (not to exceed 300 square feet)||Percentage of home used for business|
|Standard $5 per square foot used to determine home business deduction||Actual expenses determined and records maintained|
|Home-related itemized deductions claimed in full on Schedule A||Home-related itemized deductions apportioned between Schedule A and business schedule (Sch. C or Sch. F)|
|No depreciation deduction||Depreciation deduction for portion of home used for business|
|No recapture of depreciation upon sale of home||Recapture of depreciation on gain upon sale of home|
|Deduction cannot exceed gross income from business use of home less business expenses||Same|
|Amount in excess of gross income limitation may not be carried over||Amount in excess of gross income limitation may be carried over|
|Loss carryover from use of regular method in prior year may not be claimed||Loss carryover from use of regular method in prior year may be claimed if gross income test is met in current year|
If you owe a home, you should discuss with your tax professional if its beneficial for you to claim a home office deduction vs taking a full mortgage deduction on Schedule A.