A home security system keeps you and your family safe, but is generally not fully deductible. Whether you can deduct your home security system depends on if you use a portion of your home for business purposes.
Home Security Systems Installed for Personal Use
According to IRS publication 529, security systems used solely to protect a home are not deductible. Therefore, in this instance, you cannot deduct the cost of installation and monitoring associated with your home security system.
You also cannot deduct a recently installed security system as a home improvement expense because it does not meet the IRS definition of a permanent improvement. According to IRS publication 530, a permanent improvement increases the value of property, adds to its life, or gives it a new or different use.
Deducting Systems Used to Protect a Home Business
IRS publication 587, titled Business Use of Your Home, allows individuals who operate a business out of their home to deduct the cost of the security system used to protect the home. This deduction would include the cost of the system's installation and monitoring. There are four steps to claiming this deduction.
1. Determining Qualification
The first step to claiming this deduction is to determine if you qualify. To qualify to take home office deductions, you must use a portion of your home:
- Exclusively as your principal place of business
- The place where you regularly meet with patients or clients
- To exclusively store inventory
- For rental use
- As a daycare facility
These options apply to both self-employed individuals and employees who work from home. Taxpayers often debate the issue of whether an area of their home is a principal place of business, particularly when they might operate their business out of multiple locations. A "principal place of business" is defined as the space in the home used exclusively and regularly for administrative or management activities of the business.
2. Allowable Area Determination
The second step is to determine the allowable area for which you can deduct home business expenses. The "allowable area" of your home is the smaller of the square feet of your home office or 300 square feet. You may use a square footage calculator or multiply the length of the space by the width of the space to determine the square footage of your home office.
3. Determining the Deductible Amount
The third step is to determine how much you can deduct. The IRS allows you to deduct the "business percentage" of the expenses related to the home security system from your taxes. There are two methods to determine this amount: the simplified method or actual expense. You may only use one method to claim the deduction, so calculate both to determine which is larger. Both methods require you to determine the "allowable area" of your home that is used for business purposes.
In addition to the explanations below, you may use IRS publication 8829, titled Expenses for the Business Use of Your Home, or the Worksheet to Figure Business Deductions, which is provided by the IRS in publication 587, to identify how much you can deduct for your security system.
This method does not require you to allocate, calculate, or substantiate the amount of actual expenses your security system costs. To use this method:
- Determine your allowable area, as described above.
- Multiply the prescribed rate, which for 2013 is generally $5.00 by the size of your allowable area.
- Subtract the business expenses that are unrelated to your business use of your home from the gross income of your business.
- Deduct the smaller of either #2 or #3.
To help you with this calculation, the IRS provides a Simplified Method Worksheet in Publication 587.
This is the amount of operating the portion of your home dedicated to business use. It is based on if the expense is direct, unrelated, or indirect and the percentage of your home that is used for your business.
Direct expenses are those that are incurred solely for running your business. The full cost of this type of expense is deductible.
Indirect expenses are those that are used for running your entire home. Only the percentage of these expenses that are used for your business are deductible. Which amount you may take depends on the area that your home security system covers; if it covers only the space you use for business, you can deduct the full cost of the system, but if it covers other areas of your home, you must determine the percentage of your home that comprises the home office and deduct that percentage of the cost of operating the security system.
4. Claiming the Deductions
The fourth step is to claim the deduction. Self-employed individuals deduct business expenses on Schedule C of Form 1040. Employees deduct these expenses on Schedule A of Form 1040.
Limits to the Deduction
If your business expenses equal or exceed your income, you cannot deduct all your business expenses. Therefore, you must calculate the total amount of your deductions to ensure that you can properly deduct your security system as a business expense.
The IRS also allows you to claim a depreciation deduction for the cost of the security system that protects your home office. To determine the amount you can depreciate multiply the size of the allowed area by the smaller of either the adjusted basis of your home or the fair market value of your home on the date you began using your home for business. Property tax records will provide you with both these values.
Both calculations must exclude the cost of the land on which your home sits.
Deducting the Cost of Your Security System
Although you cannot deduct your home security system as a personal expense, you can deduct it as an expense for your business, but only if you work from home. For more information, contact a tax professional.