Many self-employed individuals work from home. Some employed persons need a bit of space at home to perform duties for their employer. Prospective home buyers who need space for their business activities can evaluate available houses based on how suitable each property is for a home office.
A home office is not only a place to work, as it may also result in a tax deduction. To be deductible, the area must be used exclusively for your business activity. When comparing houses for sale, keep in mind that there may be several spaces around a home that could potentially serve as a home office.
Home office options
Although the tax deduction is referred to as an office deduction, the qualifying space is not limited to a room inside your house. A separate, free-standing building may qualify as a home office, opening up a wide array of possibilities in your home search.
The nature of your business is the primary factor to consider when deciding what type of home office is needed. An area used to meet clients is likely to be very different from a space used mostly for storing inventory. Even if you are the only worker, a detached building with no heating or air-conditioning might be unsuitable for much of the year.
Tax consequences of home office size
Until recent years, home office deductions such as utilities, property tax, and insurance were always calculated as a percentage of the total expenses for the house. A simplified method is now available to calculate those deductions for home offices of 300 square feet or less.
The simplified deduction is optional and is $5 per square foot. In addition to simplification, an advantage is that you may still deduct all of your property taxes and mortgage interest as an itemized deduction. The major advantage of the simplified method is that you don't have to calculate and deduct depreciation on the home area used for business.
Final decision factors
Some businesses need more than 300 square feet of space. Access to the internet and telephone services may also determine whether a particular space is practical for home office use. If you sell or produce products that need to be shipped regularly, the ease of accessibility to your shipping provider is likely to be of concern.
Once you have designated an area as a home office, the space should not be used for nonbusiness purposes. If you are a sole proprietor, a home office is deducted on your Schedule C income statement. If you are an employee, the home office is an itemized deduction on Schedule A. Contact a real estate firm for assistance in locating a home suited to your business activities.