Deducting a home office in a large house?

[stanw]

I know that generally this could be difficult to justify, however, I just moved into a large house (4,300 sq ft) and have a room I setup for my office that I use for nothing other than my 1099 work. I have 4 other rooms in the house in addition to this room.

I receive W2 income each year, and around $20k a year from my 1099 side business.

Can I deduct a percentage, or the entire space used for the office from my taxes?

Thanks!

[Deleted]

Here's a link to the IRS website: www.irs.gov/newsroom/article/0%2C%2Cid=108138%2C00.html

As a practical matter I would think long and hard about whether this deduction is really worth it for $20k gross(?) part time income.

If you depreciate the house for business use you will need to claim the recapture down the road when you sell. In addition, you won't be able to claim the capital gains exclusion on that part of the house. Of course the rules could change down the road but I think I would do some modeling and have a talk with your tax preparer to see if it makes sense on a holistic level.

For me personally it never made sense for a part time job. However, if your intent is to grow your business and make it full time you can always elect to put it into service later when you are making more money from your business.

[mwcpa]

Bonnap provides a good link that you should read.

Generally, employees have a hard time claiming an "office in the home." The office in the home requirements include that not only the space being "regularly" and "exclusively" used for the benefit of the job, but that it be a condition of employment (meaning your boss requires it) for his convenience, not yours. In addition, the deduction is an itemized deduction limited by 2% of your AGI and you must itemize deductions.

To have an office in the home for the "1099" side business (office in the home) the same "regular and exclusive" rules come into play (the room cannot double as a guest bedroom). The deduction, which is reported on form 8829 allocate home costs (real estate taxes, mortgage interest, home insurance, upkeep costs, utilities, rent for renters) to the business by comparing the office space (regular and exclusive) to the entire space. (for argument sake, if the office space is 430 square feet and the entire home is 4300 square feet then 10% of the home costs are allowable). The big item that many forget is that you must depreciate the home (this is not an option, if you own the home and chose to not depreciate it then when you sell it the depreciation that was "allowed" or "allowable" is still subject to tax.

In any event, the link provided by Bonnap is a good one to start learning about deducting a home office.