Home Office Deductions When You Own Your Home: A Look at the Basics
Posted on: 25 April 2017
If you are an independent contractor, a small business owner or anyone else who runs a business from a home office, the Australian Taxation Office allows you to claim deductions for your home office expenses on your tax return. In most cases, you can write off a portion of your utility bills and rent based on the space your home office takes up in your home. If you own your home, however, the write off is slightly different. Here's what you need to know.
1. You Can Deduct Mortgage Interest.
If you pay mortgage on your home, you can't write off the entire mortgage payment as a small business deduction, but you can write off a portion of the interest you pay on your mortgage. For instance, imagine that your home office takes up a tenth of the space in your home and you use the space exclusively for work. That generally means you get to claim a tenth of your utilities and mortgage interest payment as a business expense.
To continue, in this scenario, if your mortgage payment is $1200 every month and $200 of that amount is interest, you get to claim $20 per month as a small business expense. That is $200 times 10%.
2. You May Have to Report Capital Gains or Losses
The reason you can't claim your mortgage principal as a business expenses is because those payments are, more or less, considered to be an investment. In most cases, when you sell your own home, you don't have to report capital gains or losses to the ATO. However, if you have used your home for business, you may have to report a capital gain or loss.
To quickly explain, a capital gain is when you sell an asset like a home, and you earn money on the sale. A capital loss is when you lose money on the sale.
To illustrate how this works, let's say you own your home for ten years and you run a home office out of it. You originally bought the home for $400,000, but you sell it for only $300,000. In this case, you have a capital loss of $100,000, and on your next tax return, you can claim part of that loss as a business expenses. That makes up for all those years when you couldn't claim your mortgage principle as a business expense.
On the other hand, if you made money on the sale of your home, you would have to report some of those gains as business income.
Working for yourself can be hard, especially when it's time to complete your tax return. To get answers to your questions, contact an accountant.
Share