Many freelancers work from home. What house related costs can you offset?
The first thing to notice that only expenses related to your business activity can be offset. See here a list. Therefore we can only deduct expenses in the proportion that are necessary to carry out our business.
Another requisite is that the Hacienda needs to be informed that we carry out our business activity from home. At the time of registration as autonomo or later on we will need to let them now what portion of the total area is given a business use. Normally this will be one or two rooms so a percentage of 20%-40% will be accepted without inquiring more.
In case that you are renting this might be a problem because you might need to split the rent in two concept, one is housing and the other business. This is so because renting for housing does not have IVA while renting for business proposes does.
Once the house is being reported as business base, then we can deduct utility bills according to the following principles:
It would be crystal-clear the distinction between business expense and personal expense if a freelance had an office in a room or a section of his house with a separate electric meter, and separate land lines form the ones he uses for personal… but that is rarely the case.
Most commonly freelances give both uses to electricity, phone, internet, etc…
The latest law regulating the self-employed business establishes a percentage of the expenses in this category that can be deducted. ( though, we will say it now, it is very low)
The only way to establish beyond doubt how much is spent on personal use and how much on business is having a separate meter.
If this is not the case, the law allows for a deduction of :
30% of the Ration between the “business area” and the total area.
A freelance can establish that 25% of his house is used for business. ( the area of his office ).
He gets an electric bill of 120€.
He can deduct 30% of 25% of 120€ = 9€.
Yes. You understood it well. Only that.
AS you can see it might be worth considering to install a separate meter if most of the electricity is consumed by the business activity.
The rule is the same as shown above.
Having two number is the only way to guarantee that you phone invoice will not be contested by Hacienda in the event of a tax revision.
This has been discusses in the article : Can I include part of my rent as a business expense?
No. The mortgage is a loan. Returning a loan is not an expense. However in this case it could be deducted the depreciation of the property.
If you own premises that are linked to a business you could deduct 3% of its value annually. ( the highest of purchasing value and catastral value)
If you use for business only part of the property, as in our assumption, you would apply a proportional part to this. In our example: 30% of 3% of the property value, annually.
The downside of this is that the deducted amounts increases the tax value of the property at the time of selling it.
In other words, the tax that you save now you will need to pay it at the time of selling because the capital gain will be higher.