Can someone please explain how to use and in-house office as a tax write off. Thanks in advance for the help!
The way I understand it is; Lets say you have a mortgage of 1000/mo. You have some sort of legit business that you run from home and you use a room as an office. Calculate the square footage of the room and the % of total floor space. You can deduct that percentage of monthly payments as home office expense. It is also a wonderful flag for the IRS to audit you. I could do it legitimately but do not. To me it isn't worth the potential hassle. Example: 10,000 square foot house, 1000 square foot room/office. Deduct 10% of mortgage payment.
if you do your taxes on turbotax it will take you through the paperwork step by step. otherwise use form 8829.
Make that seven years to be safe. The timeframe is unlimited for reviews if the IRS determines substantial fraud on the taxpayers part.....
The room has to be exclusively used only for business. No other material, such as your kid's toys or wife's Harlequin novels, should be in that room, otherwise the IRS would say that it's not used solely for business. My accountant also has told me that it raises a flag with the IRS because so many people have abused the deduction, that it's probably better not to declare it just to save the hassle of a possible audit.
You can also deduct proportional utilities and other related expenses. I have never had a problem, but my accountant suggested that I take dated photos of the office, which clearly shows that it is solely a workspace. Don't know if that would help, but so far no problems, so I haven't had to find out. One downside is that when you sell your house, you will be liable for the deductions that you have taken for depreciation, which makes it less desireable to take the deductions in the first place, but if you are renting, it is much "cleaner". Jessie
By the way, these warnings about getting audited and having to prove your office is solely used for business only apply if there is another possible place you could be working out of. If you are self employed and working out of your house (as many traders are) the IRS will probably believe you -- assuming you are deducting reasonable amounts. I've had a comprehensive audit (triggered by an amended return) and the agent didn't bat an eye over my home office deduction.