Want lower taxes? You can deduct part of your mortgage or rent expense!
If you do business from your home or apartment, isn’t the rent or mortgage you pay tax deductible?
Not all of it, but let’s see how you can claim a deduction if you conduct business from your home.
This is crucial to get right, especially if you run a consulting, coaching, ecommerce, or other service business out of your home. If you are an independent contractor or run your business from a home office, you’ll also want to know this.
According to IRS publication 334, you can claim part of your home as a deduction. There are several types of use that you can qualify for: Exclusive use, Regular Use, and ‘Principal Place of Business’. We’ll handle Exclusive and Principal Place of Business in this post.
Exclusive use means that a room or separately identifiable space must be used only for your business.
The ‘Exclusive Use Test’ for Deducting Your Mortgage and Rent Expense
To pass the exclusive use test, your home must be the principal place of business. That means you use it:
- Exclusively and regularly for management and administration of your business, and there’s no other fixed location where you do those activities in a substantial way. (paraphrased)
According to IRS webpage, topic number 509, there are 5 other ways to pass the exclusive use test:
- “Exclusively on a regular basis as a place where you meet or deal with your patients, clients, or customers in the normal course of your trade or business;
- A separate structure that’s not attached to your home, used exclusively on a regular basis in connection with your trade or business;
- On a regular basis for storage of inventory or product samples used in your trade or business of selling products at retail or wholesale, so long as your home is the sole fixed location of such trade or business;
- For rental use; or
- As a daycare facility.”
Publication 334 also mentioned something interesting for freelancers who meet with clients. If you deliver items to your clients in person while operating your business out of your home, you can deduct the cost of the round-trip to the client’s location and home as a business expense. Just don’t add detours or extra non-business stopovers; only the cost from your home to the client and back. For more info on how to deduct your car expenses, see my earlier post on Mileage Rates – When to Deduct Mileage and How.
To maximize your deductions, you’ve got to keep track of your expenses. As your bookkeeper, I can help you do that, saving you hours every month. This ensures your business books are accurate enough to make the next business moves obvious , maximizing your opportunity to succeed. Contact me for a free evaluation of your books and how we can work together to meet your business goals.