How do I get the "cost" of my home office come from? Where do I get this number? Is it how much I originally paid for the house 20+ years ago? Please advise.

The home office deduction is calculated based on expenses you enter related to the office and your home overall, such as mortgage interest. This will include depreciation, which is calculated based off of the original cost of your home. Direct expenses are those that are for the home office specifically, such as painting the room. Indirect expenses are those that apply to the entire home and can be allocated as a portion to the home office, such as property taxes and utiltities.

There are strict limits on who may take the home office deduction. The general rule for a home office deduction states that a taxpayer will not be allowed a deduction for the use of a dwelling unit used by the taxpayer as a residence. The law provides four exceptions to the general rule under which a deduction may be allowed.

Under the first exception, a deduction is allowed if the home office is used on a regular basis and exclusively as the self-employed taxpayer's principal place of business. To meet the exclusive use test, a specific area of the home must be used only for the trade or business.

A second exception states that a deduction is allowed if the home office is used exclusively and on a regular basis by patients, clients, or customers in meetings or dealings with the taxpayer in the normal course of a trade or business.

Under the third exception, the deduction of home office expenses is allowed if the home office is a separate structure not attached to the dwelling unit and is used exclusively and on a regular basis in the taxpayer's trade or business.

The fourth exception allows a deduction of a portion of the cost of a dwelling unit if it is used on a regular basis for the storage of business inventory or product samples held for use in the self-employed taxpayers' trade or business of selling products. Under this exception, the taxpayer's home must be the taxpayer's sole place of business.

The Home Office Deduction