I recently received this question at USTaxAid.com.
Question: My husband and I are starting an online business featuring home and garden projects. A lot of the content on our website will be based on projects we do in our own home and garden. We are familiar with the home office deduction (we already have a successful online business on a different topic), but we are wondering how we deduct the utilities, mortgage interest, etc. relating to the portion of our property that is used for our garden. Would we use the same type of calculation for our home office, measuring the entire property and use the percentage that is our garden? Also, how would this be shown on our tax return, as a second home office?
Answer: Let’s start with the beginning. When do you get to take a home office deduction?
First of all, you need to have a business. You also need a space that is regularly and exclusively used for business. Once you have established that, you have several choices.
You can use the IRS’s simplified method of $5/square foot for the costs. This is the total annual and may not exceed $1500.
Or you can use the business percentage (business square footage divided by the total square footage) and apply it to your indirect costs. That would include rent or mortgage interest, property taxes, HOA dues, utilities, janitorial and landscaping.