It is important to categorize your annual home expenses to determine if they are tax deductible, whether or not you have a home business. Learn more inside.

Certain expenses are deductible whether or not a taxpayer has a home business. These include:

Other expenses are deductible only if a taxpayer uses the home for business and is using the regular method to figure the home office deduction. These expenses generally include items like:

The IRS groups home-related expenses into 3 categories:

The expenses that benefit only the business part of the home. They are deductible in full (subject to the home office gross-income limit, but they are not prorated by the business-use percentage)., NOTE:, Don’t confuse direct expenses with expenses directly related to the business., Directly related expenses aren’t subject to the limitation of §280A and are fully deductible as business expenses and include such items as office supplies, postage, advertising, etc.

The basic charge of the first home telephone line in the home is non-deductible. However, toll calls on that line related to the taxpayer’s business are deductible (without limitation)—i.e., they are directly-related expenses without limitation. The cost of a second telephone used only for the business is a directly related expense fully deductible without limitation.

Indirect expenses (i.e., the expenses of running the entire home such as general repairs, not directly traced to the business) must be pro-rated in computing the home office deduction., This is normally done on the basis of space in the home office versus total space in the home.

Unrelated expenses (i.e., those incurred for purely personal purposes) are non-deductible. The IRS would say that lawn care and landscaping are not related to the use of the home for business purposes. However, cases vary on this view.

i. Letter Ruling 8534021 disallowed deductions for a landscape architect who claimed landscaping expenses, because he occasionally showed his home landscaping to clients as an example of his work.  

ii. Hefti, Charles (1988) TC Memo 1988-22 allowed a deduction to a taxpayer who had clients regularly visiting his home. The outside appearance of the house was deemed important to taxpayer’s audio-visual business operations.