What is a home office expense?

From: Business School 101

and Alamo Bookkeeping Associates

So what exactly are considered “Home Office” expenses?

1st let's begin with whether you should claim a home office. The plus is that it becomes a deduction on your tax return. However depending on the size of your house this may end up being just a few hundred dollars for the year, if that. The drawback is that if you sell your house, you have to recalculate the amounts you expensed for depreciation of the home and add that to your gain, if you have one. In other words, you may have to take back the depreciation expense you deducted each year on the house when you sell it. This is called recapture. You can however, deduct other expenses and leave out depreciation on the home.

If you decide that you are going to expense your home office. Then the information you need is the following:

The purchase price of your house if you choose to depreciate. You can also choose not to depreciate, in which case you don't need the purchase price. At least not now, you will need that if and when you sell your house in the future.

The total square footage of your home.

The square footage of the room or space you use for your office.

Interest on the house payment.

Insurance on the house.

Repairs and maintenance on the house and/or on the actual office space in the house.

Utilities.

If you are renting the house then you would use the rent payment instead of interest and depreciation.

Next: How the actual home office calculation works.