Which Home Office Expenses Are Deductible From Your Taxes?

If you operate a home-based business, there are many different expenses which can be deducted from your income to reduce your taxes. Software that is designed for consultants, freelancers, contractors and small business owners includes guidance for home-based businesses that can be help prepare your tax return.

Expenses related to a home-based business can be deducted from your business income if your home is your principal place of business or if you use a space in your home on a regular basis to meet clients, customers or patients.

As a rule, any reasonable expense that you have incurred to earn income for your business is deductible. To determine the extent to which general expenses related to your home can be deducted, you must use a reasonable method of calculation based on your specific business.

You can usually deduct a percentage of your home expenses that’s equal to the percentage of your home’s total area occupied by your business. For example, if your home office represents 15 percent of your home’s total area, you will be able to deduct 15 percent of the total allowable expenses — as long as the space is used only for business purposes.

If the space is used for both business and personal matters, or if you operate your business for only a portion of the year, further calculations will be required to determine the actual percentage you’ll be able to deduct.

Once the percentage of your home used by your small business has been calculated, you can deduct the applicable portion of your property taxes and mortgage interest. If you rent your home, a portion of your rent is deductible. Both cleaning expenses, and maintenance costs such as heat, home insurance, electricity and Internet connection are also deductible.

If you own your home, you can also deduct an amount for capital cost allowance, or depreciation. However, this amount will become recaptured and taxable when you sell your home. In most cases, taking CCA on your home isn’t worth the future cost.

The amount of expenses you can claim as deductions is limited to the total income generated by your business. Home expenses cannot be used to create or increase a loss. If your business income is insufficient to deduct all of your expenses, they can be carried forward to future years.

To claim your deductions, your tax return must include a Statement of Business or Professional Activities, known as a Form T2125, detailing the expenses related to the business use of your home.

Using appropriate and high-quality software is important to help ensure that you claim all relevant deductions on your return. For example, the Home & Business edition of TurboTax is designed for small business owners and can be used to prepare tax returns for home-based businesses.

References & Resources

• CRA “Business expenses”
• CRA “Line 9945 – Business-use-of-home expenses”