Home office expense is the amount of portion that is exclusively used on a regular basis for business purposes.
There are 2 ways of home office
- Simplified method – each square foot is $5. Maximum square feet is 300, so the total deduction is $1,500
- Regular method – home office expense is calculated after gross income deducts all other expenses in Sch C page 1 and page 2. Then, the amount is first netted against operating expenses before depreciation.
- operating expense (direct & indirect) + prior year carryover
- depreciation + prior year carryover
Comparison of methods
| 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 |
Depreciation of home:
At conversion, use the lesser amount of cost or FMV.
Benc Tan 