Deductions for Landlords: The Home Office

There are few tax deductions taken by business owners that are more feared than home office deductions. Some business owners are convinced that claiming this deduction increases the chance of an audit, although the IRS is adamant that this isn’t the truth. Either way, if you follow the rules, and maintain proper records, you should have no fears.

The key to this tax deduction is that rental property owners may claim this tax write-off if they are active, which is to say you must be doing more than cashing checks. If you consistently spend a substantial amount of time preparing and maintaining properties, you will likely qualify as an ACTIVE rental property owner.

Once you’ve met this qualifier you will also need to meet the basic home office deduction thresholds. Firstly, you must use the home office exclusively for your rental business on a regular basis.

Then you’ll also have to meet at least one of the following:

1. This office space must be the principle location from where you manage your business as a rental property manager.

2. You have no other fixed location where you perform the administrative activities that are required to operate your business.

3. You use the office to meet clients and potential clients.

4. You use some other structure on your property to conduct business.

After you’ve determined that you are eligible for home office deduction, then it’s time to learn what expenses qualify for deductions. There are two major types: direct and indirect. Indirect expenses benefit the entire home. While direct expenses benefit the home office space only. Examples of direct expenses can be painting or cleaning expenses. While examples of indirect expenses can be payments on property tax, mortgage,, and utilities, these expenses are apportioned out between the office and the rest of your home. This percentage is usually calculated by the square-footage ratio. For example, a 2,000 square foot home with a 200 square foot office space would mean that 10% of indirect expenses would count toward home office deduction expenses.

And you will want to ensure that you are keeping meticulous records in case there is an irs audit. You will need to be able to prove that you were entitled to any claimed tax deductions. A diagram and/or a photo will support your claim of square-footage ratios. It is wise to have your home office address listed on business cards, letter heads, or other forms of professional communication. And when using your home office to meet tenants, it is wise to keep a log to keep track of meetings. You should keep utility bills, mortgage interest statements, insurance premium statements, property tax statements, and other related expense statements.

Home office deductions can get complicated. Please do not consider this to be reasonable solution to the informed counsel of a seasoned Bellevue CPA. But this should help you gain a basic understanding the requirements of successfully claiming home office deductions.

Bellevue Accountant +John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

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Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has been the owner of his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.

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  • Huddleston Tax CPAs / Huddleston Tax CPAs – Bellevue CPAs
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