Tax Deduction For Business Use of A Home

Many individual taxpayers do some income producing work out of their homes and feel that they should be allowed to deduct part of the costs of their home on their income tax returns. For example a bankruptcy lawyer might work on some of his briefs on his home computer on weekends. However, the tax law limits the situations in which the deduction is available.

Basically a taxpayer may take a deduction for business use of the home, if it is the principal place of a taxpayer’s business, if the home is used to meet clients or customers, if the home is used to store inventory for a retail or wholesale business ,or the home is used to provide day care services. Also a detached structure from the main residence used for business purposes such as an office over a detached garage can qualify.

Each category also has specific requirements that must be met. For example space must be used exclusively for the business purpose to be deductible as a principal place of business, as a place to meet customers, or as a detached structure from the main residence. A space deducted for meeting customers must involve actual physical meetings, not merely phone calls or emails.

Tax Deduction For Building Repairs

A taxpayer can take an income tax deduction for repairs and maintenance of property used in a business or as an investment. However, the cost of an improvement to property has to the property be treated as a capital expenditure, which means that no tax deduction is available.

In some cases the difference between a repair and an improvement is obvious. Painting a building the taxpayer uses to operate a retail business would be a deductible repair, while adding a second story to the premises would be a non deductible capital improvement. Other items though could fall in a grey area, such as replacing windows or doors with much higher quality windows or doors; and as I know well as a bankruptcy lawyer having to argue with the IRS can prove expensive.

Fortunately beginning in 2014 small businesses can rely on a safe harbor for repair expenses for buildings . Taxpayers with less than $10,000,000.00 of annual gross receipts can now elect to deduct all expenses on a building that costs up to $1,000,000.00 provided the deduction for the year does not exceed the lesser of $10,000.00 or 2% of the building’s unadjusted basis.