Generally, rent or mortgage payments you make to provide for your own personal shelter are not directly tax deductible. The IRS includes your baseline personal shelter costs in your personal and dependent exemption. However, rent you pay for business purposes is generally deductible — including rent you pay for an office or storage facility at home.
Rent and Mortgage Payments Overview
Personal rent payments you make to others are never deductible unless there is a bona fide business necessity. The same is true of mortgage payments, though you may deduct the interest paid on mortgages up to $1,000,000, provided the home is used as collateral for the loan. You can only deduct the interest you pay on $100,000 for home equity loans, however.
Home Office Deduction
You can, however, deduct rent or mortgage payments you make for business purposes, including home office and home storage facilities. You calculate the deduction by comparing the square footage you use for business purposes against the total square footage of the dwelling. If you have a 2,000-square-foot home, and you devote 200 square feet to a home business, you can deduct 10 percent of your rent payment, mortgage payment, utility payments and property taxes.
Qualifications for the Home Office Deduction
To take the home office deduction, the square footage you are attempting to deduct must be exclusively devoted to your business. You cannot have a mixed-use area devoted partly to personal use and take the home office deduction, except if the use is for storage. To document your home office against a challenge by the IRS, do not keep personal, non-business effects in the home office area. Take photographs of the home office. It does not have to be a separate room; you can use an area in the home, such as a corner of the living room.
Tips for Employees
You do not need to own a business to claim a home office deduction and deduct a portion of your rent or mortgage payments. Employees can also take the deduction, provided they devote a portion of their home for the convenience of their employer. However, you cannot rent a portion of your home to your employer and claim the deduction.