If in retirement you start a home-based business, you might be able to qualify for home office tax treatment. With a home office, you can write off a portion of your housing expenses: utilities, home security, homeowner’s insurance, etc. You also can take depreciation deductions for the percentage of your home used for business.
There are two ways to calculate your home office.
1. Room-by-room. If you live in an eight-room house and you use one of those rooms as a home office, you can deduct 12.5 percent of your heat, electricity, and so on. You’d also depreciate 12.5 percent of your house.
2. Square footage. Suppose you live in a house that has 2,000 square feet. One room, 12 feet by 10 feet is set aside as an office. This 120-square-foot room is 6 percent of 2,000 square feet, so you can deduct 6 percent of your rent of your housing costs.
In order to take home office deductions, you must have a space in your home you use regularly and exclusively for business. In addition, you must meet at least one other requirement. For example, your home office might be your spouse’s principal place of business.
Another way to qualify for these deductions is to have an area where you meet regularly with customers or clients. Still another is to use a separate structure, such as detached garage, as an office.