a. Measure square footage of your entire home

b. Measure square footage of your home office

c. Divide office's square footage by your home office's square footage

d. This number is your percentage..Apply this percentage to indirect expenses, like your mortgage taxes, utility bills, real estate taxes, and upkeep. So, you can deduct a percentage of home-related expenses based on percentage of space in your home that your home office takes up. So if your house is 5,000 square feet and your office is 500 square feet, you can deduct 10% off indirect expenses and home cost. Don't worry, direct expenses are still deducted in full. For example, don't use percentage on things such as a business phone line.

e. Find out home purchase price and add to that all home improvements

f. Find out value of land

g. Find out market value of your home.

REASONS HOME OFFICE DEDUCTIONS ARE SOMETIMES NOT WISE TO TAKE

Yes, taking a home office deduction sounds like a great idea, but remember there is a downside too. If you deduct your home office, your office may be considered business property. This means that you will need to pay taxes on amount business depreciated when you sell your house. Because of this, a home office deduction might not be profitable for you. You might save a few hundred dollars every year with home office deduction, but have to pay thousands of dollars when you sell house. Because of this, I recommend visiting a tax accountant before deducting a home office.

Another reason not to take home office deduction is because IRS might decide to audit your business when they see your home office deduction. Taking this deduction is like throwing a red flag in front of IRS, so it is up to you whether you want to take risk and deduct your home office.

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