It isn’t easy to figure out what expenses one can claim.
The tax code is a very hefty and exhausting read, and not everyone may be able to spend the time necessary to read it thoroughly. Because of this, people usually end up paying more taxes.
Is home security tax deductible? Home security system costs usually are not tax-deductible. However, if you work from home or use part of your home as the principal place of your business, you may be able to deduct part of your home security expenses.
There are some caveats and exceptions that anyone can overlook or outright not know about.
So let’s take a more in-depth look.
When Home Security Expenses Are Tax Deductible?
According to the IRS,
“If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. You can also take a depreciation deduction for the part of the cost of the security system relating to the business use of your home.”
So what does that mean to you?
Generally, home security system expenses—including installation, maintenance, and monitoring expenses—are not tax-deductible if you use your home security system to secure and protect your personal property because it is classified as a nondeductible expense by the IRS.
Nevertheless, according to the IRS, homeowners can deduct part of their home security expenses under certain conditions.
People working and running a business from their homes can claim part of the home security expenses.
Though, there are some requirements that owners have to meet.
Technically you can have multiple business locations where you can run your business from. If you intend to deduct the expenses you have incurred for the business use of your home, the IRS requires your home to be the principal place where your business is conducted.
According to the IRS, for a home office to qualify as a principal place of business, you have to use it exclusively and on a regular basis for the day to day administrative and managerial activities of your business, and you must not have other fixed places where you do a significant part of your business activities.
In other words, you have to be able to prove a specific part of your home is used exclusively for work-related activities.
There are also some exceptions, however.
Even if you conduct part of your business at another place, you may still be able to deduct part of your home security expenses if you are physically meeting patients, clients, or customers regularly in your home office.
People renting a property, part of which is used for business or as a home office, also qualify for tax deductions on their home security system expenses.
Home security expenses can also be deductible if you are operating part of your business in a separate or detached structure like a studio, garage, workshop, or barn, granted it is being used regularly and exclusively for your business.
Problems may arise if the home office area is not clearly identifiable or completely separated. Ideally, you want your home office to be a separate room where it is clear it is not used for other activities by you or other people. Technically even a corner of a room or a studio apartment can be claimed as a home office, but again, it should be clear that it is not being used for other activities, even occasionally, which can be tricky to prove.
Owners are expected to be transparent, and many of the calculations are done using the honor system. Nonetheless, owners should not take that lightly and be fully prepared to prove anything and everything they have claimed in front of the IRS in case of an audit.
However, even if you qualify for the tax deduction, you may still be subject to other limitations.
How Much of Your Home Security Expenses Are Tax-Deductible?
The IRS allows owners to choose between the simplified method or the actual expenses method when calculating their tax deductions.
The Simplified Method
The simplified method requires you to calculate the total area of your home you are using to run your business (limited at a maximum of 300 square feet) and multiply it by a prescribed rate, which is currently set at $5.
In other words, you are allowed to deduct $5 for every square foot you are using as a home office with a maximum limit of $1,500.
The simplified method takes much of the work away, but it limits how much you can deduct.
The Actual Expenses Method
The actual expenses method requires owners to itemize, keep track of all expenses, and calculate the percentage of deductible costs. The advantage is that this method allows owners to apply for higher tax deductions in some instances.
The actual expenses method also allows owners to claim other deductions like the depreciation of their home security system.
To figure out how much of your home security expenses you can deduct with the Actual Expenses Method, you need to calculate what percentage of your home you use for business activities or as a home office.
- First, you need to calculate the area of your home you are using to conduct your business.
- Then divide that number by the total area of your home.
- And lastly, the result is then converted into a percentage.
Put simply, if you are using precisely half of your home as a home office, you can expect to be able to deduct half of the costs of your home security system.
Simplified Method vs. Actual Expenses Method
Now let’s take a look at a quick example.
- A room measuring 10 feet by 20 feet is used as a home office; after multiplying 10 by 20, we find that its area is precisely 200 square feet.
- The total area of the home is 1,000 square feet.
Using the Actual Expenses Method, we get the following:
- Dividing 200 (the area of the home office) by 1,000 (the total area of the home) gives us a result of 0.2, which is multiplied by 100 in order to convert that number into a percentage; thus we get, 0.2 x 100 equals 20 or 20%.
- The business percentage is 20% which means 20% of your home security expenses (and depreciation) are deductible.
Using the Simplified Method, we get:
- Multiplying 200 (the area of the home office) by $5 (the current prescribed rate), we get a maximum tax deduction of $1,000.
The owner cannot apply for a higher tax deduction than $1,000. If their expenses are significantly less than $1,000, they can stick to the Simplified Method; otherwise, it is worth going with the Actual Expenses Method.
Technically if you have a separate area or structure where your home office is located, you can install a security system that will cover only the home office, which can be written off as a direct business cost and be 100% deductible. (Although at this point, this may qualify as a business security system.)
Some Real-World Numbers
The average size of home offices tends to be between 50 to 200 square feet.
Considering that an average house is about 2,687 square feet, this means that owners can save between 1.86% to 7.44% on their home security expenses.
The average apartment size in the USA is about 882 square feet, which means owners can save about 5.60% to 22.60% on their home security expenses.
Monitoring costs tend to be between $5 to $65 per month. This means that owners can save between a few cents to over $175 a year. (In certain cases, even more.) Installation and maintenance costs can be difficult to calculate, but the savings can vary between $100 and up to $1,000 in some instances.
If the business you are running from your home is incurring higher expenses than its gross income, you may be subject to some deduction limits.
For example, if the gross income of a home-run business is $10,000 per year, generally, the deduction limit is also $10,000.
Expenses are deducted in a particular order. And the expenses for your home security system may be limited, in which case they can be carried over to the next year.
And lastly, you can only apply for a tax deduction on your home security expenses only for the part of the year your business has been operating.
Can Home Security Still Save You Money Even if It Is Not Tax-Deductible?
Of course, there are other ways a home security system can save you money, even if you do not qualify for a tax deduction.
Having a professionally monitored home security system that is offered by a reputable security company can save owners up to 20% on their home insurance.
The idea behind that is very simple—owning a home security system has been proven to deter burglars. From the Insurance companies’ point of view, this means a safer home and lower incidence of filed claims, or in other words, there is less of a risk for them to lose money; thus, they can be willing to offer lower home insurance premiums.
Even though burglaries have been going down in numbers over the years, they are still happening very often (a little over 2 burglaries occur every minute in the USA), with an average property loss of around $2,661. So a home security system can potentially save you a lot of money by deterring criminals.