More and more people are working at least part time out of a home office and claiming it as a deduction.
Before claiming home office deductions, homeowners should take into consideration the impact the deductions will have on the sale of their home, when the time comes.
Anybody who claims deductions for a home office may end up paying tax on part of their profits on the sale. This is true even if the profits are less than the current home sale exemption of up to $500,000.
There’re a couple of reasons for this. One is that the home-sale exemption can’t be used to protect that part of your gain that is equal to any depreciation deductions allowed for business or rental use of the property for periods after May 6, 1997. Two, is that unless 100% of your home qualifies as a principal residence for at least two of the five years preceding the sale, you’ll be forced to pay capital gains tax on the business portion of your home.
Anyone taking a home office deduction should get the advice of a tax professional to make sure that you are taking full advantage of the laws that benefit you, while at the same time not setting any tax traps for the future.