How To Calculate Business-use Home Expenses – Explained
August 3, 2022
Are you running a business from your residence? If so, you may be able to claim some of your home office expenses on your personal tax return.
Individuals who work from their home office can deduct expenses for the business use of a workspace in their home, so long as they meet one of the following conditions:
- it is their principal place of business
- the space is used only to earn business income and is being used on a regular and ongoing basis to meet clients, potential customers, or patients
What Home Expenses Can Be Deducted?
Individuals can deduct part of their workspace maintenance costs such as heating, home insurance, electricity, internet, and cleaning materials. They can also deduct part of their property taxes, mortgage interest and capital cost allowance (CCA).
What Is Considered an Acceptable Workspace?
For a home workspace to be considered acceptable, it must be a room with a door that can be closed. Areas such as the kitchen table or table in the corner of a living room are not considered acceptable workspaces.
For areas of the home which are used for both business and personal use, individuals will need to calculate how many hours in the day are being used for business purposes and divide that amount by 24 (the amount of hours in a day). Then they would multiply the result by the business part of the total home expenses. This calculation will compute the household cost that can be deducted. If the business only operates for part of the week or year, this will need to be taken into consideration and adjusted accordingly when making a claim.
The capital gain and recapture rules will apply if an individual deducts CCA on the business use part of their home and they later sell their home.
If the home is being rented, individuals can deduct the part of the rent and any expenses they incur that relate to the workspace.
The amount an individual can deduct for business-use-of-home expenses cannot be more than the net income from the business before expenses are deducted. In other words, home expenses cannot be used to increase or create a business loss.
If you have any more questions about how to calculate business-use home expenses, please do not hesitate to give us a call.