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J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line by Barbara Weltman

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Allocating the Business Part of Home Expenses

Some expenses of the home office are directly related to business use and are fully deductible. For example, if you paint your home office, the entire cost of the paint job is a business expense. Other expenses are indirectly related to business use of your home office; rather, they relate to your entire home. Indirect expenses include:

  • Deductible mortgage interest
  • Real estate taxes
  • Depreciation
  • Rent
  • Utilities
  • Insurance
  • General repairs to the home (such as servicing the heating system)
  • Security systems
  • Snow removal
  • Cleaning

Only the portion of indirect expenses related to the business use of your home is deductible. How do you make an allocation of expenses? If you have 5 rooms and use 1 for business, can you allocate one-fifth of expenses, or 20%, for business? The answer is yes if the rooms are more or less the same size. This is often not the case. If rooms are of unequal size, you allocate expenses based on the square footage of business use. Determine the size of your home; then determine the size of your home office. Divide the size of your home office by the size of your home to arrive at a percentage of business use.

Example
Your home is 1,800 square feet. Your home office is 12 feet × 15 feet, or 180 square feet. Therefore, your home office use is 10% (180 divided by 1,800).

Once you have determined your business percentage, you apply this percentage against each indirect expense.

Example
Your business percentage ...

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