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Home office deduction: depreciation or simplified actual expenses?

If you work inside your home for your employer (not your own business), you may be able to deduct certain expenses for the business use of your home. If you work in your home for your own business, use the Schedule C flow to enter home expenses. The home office deduction applies to whether you own your home, rent it or have another type of living situation.

You can calculate your home office deduction using a simplified method or a regular one.

The simplified method is easier to calculate and is typically ideal for small business owners. In both the simplified and regular method, the portion of your home must be exclusively used for your business and cannot be used as another part of your home (like a guest room or a gym). All deductions in the simplified method are reported on Schedule A and the square footage deduction for the business use of your home is a set price each year ($5 per square foot used for 2017). You also cannot carry over of a loss from use of regular method in prior year. What’s most beneficial for this method is you do not need to count receipts every year to figure your deduction and there is no recapture of depreciation upon disposal of your home. For more detailed information using the simplified method, check out the IRS website. 

The regular method is a more complicated but may give you a bigger deduction. It’s similar to the simplified method in that the portion of your home you’re using for business must be exclusively for your business. However, loss from use of regular method in prior year may be carried over if gross income test is met in the current tax year. s. You’ll be required to itemize your expenses, which can take a long time, and you must have and keep supporting documents.

To find which method works best for your, check out this IRS website for more detailed information.

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