New Treasury rules could save you money! The rules will reduce capital-gains taxes for many homeowners who deduct home-office expenses and later sell their home at a profit.

Currently most homeowners can avoid capital gains taxes when they sell their home if they have lived in it for two out of the last five years. But if they have taken a deduction for their home office, they typically would pay tax on the gain attributable to the office portion of the home. To avoid the capital gains tax (and also because they are afraid of an audit) many people skip taking the deduction. The new regulations can be applied retroactively, so any taxpayer to whom these regulations apply can amend an open tax year (generally, 3 years).

The new rule says homeowners don’t have to allocate any part of the gain to the business portions of their home, as long as their office was within their residence.

What can you deduct?

Home office deductions generally are based on the size of your office relative to the size of your entire home. For example, if you have a 2,000-square-foot house and a 300 square-foot office space, you can deduct 15% of your home expense as office cost.

These expenses can include property taxes, mortgage interest, homeowner’s insurance, utilities, household maintenance and repairs and alarm systems, among other things. Expenses directly attributable to the office – such as paying to have it painted and cleaned and separate hookups for the other telephone and utilities can be  can be 100% deductible or depreciable.