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Home Office Deduction

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Can an individual deduct the cost of a home office? Under which circumstances might a deduction be allowed? Find one court case that held in favor of the deduction and one court case that held against the deduction.

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This posting gives you a step-by-step explanation of home office deduction. The response also contains the sources used.

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In accordance with BrainMass standards this is not a hand in ready assignment but is only background help.

Step 1
Individuals can deduct the cost of a home office if they use a part of their home for business. The individual can deduct expenses for the business use of her home. Those who own their homes or are renters can avail themselves of this deduction. The individuals must find out the actual expenses of their home office. This can include the cost of mortgage interest, insurance, utilities, repairs, and depreciation. Deductions for a home officer are based on the part of the home that is devoted to business use (e).

For an individual to deduct the cost of a home office, he must satisfy two requirements. He must make exclusive use and regular use of a part of his home for conducting business. For example, if an individual uses an extra room to run his business, he can take a home office deduction for the extra room. Also, it is required that the individual uses her home as her principal place of business. If the business location is outside the home, but the person also uses his home substantially and regularly to conduct business, the person may qualify for home office deduction. For example, if a person regularly conducts in-person meetings with patients, clients, or customers in his home, he can claim deduction.

Step 2
When a person is an employee and he uses a part of his home for business, he may qualify for a deduction for its business use. If the individual is an employee he must establish that the business use is for the convenience of the employer, and that a part of the home has not been rented to the employer and a part of the home has been used for business purpose. In short the individual must not rent a part of his home to the employer to deduct the cost of a home office (a).

Step 3
For the years starting after 1st January, 2013, the simplified option for deducting the cost of a home office came into force. According to IRS Revenue Procedure 2013-13, January 15, 2013, an individual can claim home-office deduction at $5 per square foot of home office with a maximum write off of $1,500. This is based on a maximum of 300 square feet. However, the individual will not be able to depreciate the part of the home used for business. For those individuals who think that their write-offs would substantially exceed $1,500 or the home office is much larger than 300 square ...

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