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March 9, 2011
Know Tax Rules for Home Businesses
Many unemployed people are operating home-based businesses to supplement income or to replace earnings. If you use part of your home exclusively for a commercial activity, you may be able to deduct expenses for the business use of your home.
The home office deduction is available for homeowners and renters and applies to all types of homes – from apartments to mobile homes. Deductible expenses may include mortgage interest, insurance, utilities, repairs and depreciation.
To deduct expenses related to the business use of your home, you must carry on a bona fide business, as well as meet other specific requirements. Even then, your deduction may be limited.
To qualify to claim expenses for the business use of your home, your use of the business part of your home must be both exclusive and regular. In addition, the business part of your home must be one of the following:
* Your principal place of business
* A place where you meet and deal with customers in the normal course of your trade or business
* A separate structure you use in connection with your trade or business
You cannot deduct business expenses for any part of your home that you use for both personal and business purposes. For example, if you regularly work in the den or at the kitchen table, you may not deduct any business-use-of-your-home expenses. The exclusive-use test does not apply to the portion of a home regularly used to provide day-care services.
Deductible expenses for the business use of your home include an appropriate percentage of items such as the business portion of real estate taxes, deductible mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs.
IRS Publication 587 has detailed information on rules for the business use of your home, including how to determine if your home office qualifies as your principal place of business.
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