A true home office might be eligible for a tax write-off.
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Federal tax law provides for business deductions on a whole range of expenses. If you run your business from your home, you might be able to take advantage of these deductions, one of which is mortgage interest payments. To qualify, you must meet certain requirements regarding usage of your home for business.
If you work remotely for an employer, your home office deduction no longer is available, as of the 2018 tax law.
If you own a business that you run from your home, you can qualify for home office deductions if certain requirements are met. The office must be a separately identifiable space devoted to regular and exclusive use for your business. It must either be your principal place of business, a place where you meet customers, patients or clients or a separate structure designated as your home office. Alternatively, the space can qualify if it's used to store inventory or product samples, or is a rental unit or a daycare facility.
The simplified method is one of two ways you can calculate your home office deduction. The calculation is to multiply the area devoted to your business (up to a maximum of 300 square feet) by $5/sq. ft, making the maximum deduction $1,500. This method doesn't rely on individual expenses, such as mortgage interest, which makes record-keeping much easier. You also cannot deduct depreciation on your home office during years you elect the simplified method.
You use the regular method if you want to deduct actual expenses arising from your home office. The method starts by dividing the business office area by your home's total area. You can then apply the resulting factor to deductible business expenses, such as mortgage interest, repairs, utilities and insurance. You can also deduct a portion of the interest from a second mortgage on your home. The regular method requires extensive documentation of each deductible expense. The IRS may also want evidence of the size of your home and your office area.
Imagine you have a $500,000 mortgage on your 4,000 square-foot home, and you pay $24,000 in mortgage interest for the year. Furthermore, you use 400 square foot (10 percent of your total area) exclusively as your business office. The regular method would allow you to deduct 10 percent of your mortgage interest, or $2,400. This would be just one part of your total home office deduction. The simplified method would provide you a total tax deduction of only $1,500 for your home office, based on the size limit of 300 square feet.
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Bank,, Eric. "Can I Deduct Mortgage Payments for a Home Business?" Home Guides | SF Gate, http://homeguides.sfgate.com/can-deduct-mortgage-payments-home-business-61331.html. 09 December 2018.