If you can take home office deductions, the first step is to calculate the office portion of your home.
By room. If one of your home’s eight rooms is your office, the home office portion is 12.5 percent.
By area. If your home has 2000 square feet and your home office has 200 square feet, the home office portion is 10 percent. Once you have this ratio, you can deduct that portion of your costs for utilities, security monitoring, homeowners insurance, etc.
A renter with a 10 percent home office, for example, can deduct 10 percent of the rent. Homeowners (including condo and co-op owners) also can take depreciation deductions.
From your basis in your home (purchase price plus capital improvements), deduct the amount allocated to land from your basis in the property.
From the remainder, calculate the depreciation deduction. If your basis in your home is $250,000, with a $50,000 allocation to land, you have $200,000 worth of improvements to depreciate. If your home office is 10 percent of your home, you’d have a $20,000 basis in your home office to depreciate: 10 percent of $200,000.
Yet another tax break may be available if you qualify for a home office deduction: you may be able to write off your car expenses going to and from home. Without a deductible home office, you can’t deduct expenses for your first or last car trip of the day.
