Home Office Expenses
For tax purposes, one of the most common deductions is the business use of a portion of your home.
How it works:
When a business does not have a principal place of business elsewhere, and a portion of the home is used to earn business income, a deduction can be claimed for the costs of maintaining the home.
These deductible costs can include property taxes, utilities, insurance, mortgage interest (but not principal), and any other items relating to the home’s operation.
However, you cannot claim 100% of these costs. The deduction is limited to the dedicated area of the home that is used for business. If there is no dedicated area, the costs must be pro-rated based on the period that the room was used for business purposes.
How to calculate it:
As an example, if a business owner had a dedicated 300 square foot office in their 2,800 square foot home, they would be able to deduct 10.7% of the operating costs of the home, presuming that their office was not used for non-business purposes.
In the year, they paid mortgage interest of $10,500, property taxes of $3,500, utilities of $4,200 and repairs to the home of $2,000.
As discussed above, the deduction for the first three items is limited to 10.7% of the total expense or $1,979.50 for the year.
Repairs are somewhat different, and the deducibility of a repair will depend on whether it was directly related to the office, regular maintenance of items which impact the whole home (furnace repairs and the like) or related to non-dedicated rooms only.
As with all tax topics, there are complexities with home office expenses that are beyond the scope of this article.
We are happy to discuss any individual questions that you have over a call or a meeting at our office!
The above material is current as of December 12, 2024.
The information presented is a general overview and not intended to cover specific situations. You should consult with your professional advisors directly before taking any action.
Vertefeuille Rempel Chartered Professional Accountants LLP, its partners, employees and agents do not accept or assume any liability by anyone relying on the information presented.