When you use part of your home for business, you may be able to deduct expenses for what the IRS deems the “business use of your home.” If you qualify, you should be able to deduct a percentage of many of the costs of running your home, such as utilities, rent, insurance, depreciation, mortgage interest, real estate taxes, and some casualty losses, repairs, and improvements (if they relate to the part of the home you use for business).

The home office deduction is available to renters and homeowners alike. It is available for office space and other areas you use for business in your home — such as a studio, workshop, or garage. According to the IRS, your “home” can be a house, condo, or apartment unit — or even a mobile home or boat, as long as you can cook and sleep there.

However, you must meet two tax law requirements to qualify for the home office deduction:

Requirement #1: Regular and exclusive use. You must regularly use part of your home exclusively for a trade or business. The IRS doesn’t offer a clear definition of regular use — only that you must use a part of your home for business on a continuing basis, not just for occasional or incidental business. You can probably meet this test by working a couple of days a week from home, or a few hours each day. Exclusive use means that you use a portion of your home only for business. If you use a room of your home for your business and also for personal purposes, you don’t meet the exclusive use test. However, you can set aside a portion of a larger room to be used only for business, as long as your personal activities don’t stray into it.

There are two exceptions to the exclusive use rule: You don’t have to meet the exclusive use condition if you use part of your home to store inventory or product samples, or if you run a qualified day care facility at your home.

Requirement #2: Principal place of business. You must also be able to show that you use your home as your principal place of business. In addition to using part of your home regularly and exclusively for a business, your home must be your “principal place of business.” If you conduct your business only from home, then you meet this requirement.

Your home automatically qualifies as your principal place of business if both of the following are true:

• You conduct the administrative or management activities of your business from home.
• You have no other fixed location where you conduct those activities.

To be on the safe side, be ready to prove to the IRS that you are entitled to take the home office deduction. Here are some steps you can take to help establish your legal right to deduct home office expenses:

• Photograph your home office and draw a diagram showing the location of the office in your home. Keep this information in your tax folder.
• Have your business mail sent to your home.
• Use your home address on your business cards and stationery and in all business ads.
• Get a separate phone line for the business.
• Have clients or customers visit your home office — and keep a log of those visits.
• Keep track of the time you spend working at home.

For more information, visit http://www.irs.gov/

Related posts:

1. Getting the Business Insurance You Need
2. The Legal Ins and Outs of Working From Home
3. Six Tips for Working Well at Home