Home Office Tax Deduction
The Internal Revenue Service recently stated that it wants individuals to consider taking the home office tax deduction if they qualify. The benefit may allow taxpayers working from home to deduct certain expenses on their tax return. This is especially true now that we are in the COVID era.
The home office tax deduction is available to qualifying self-employed taxpayers, independent contractors and those working in the gig economy. However, the Tax Cuts and Jobs Act suspended the business use of home deduction from 2018 through 2025 for employees. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if you are currently working from home.
Do You Qualify for a Deduction?
There are basically two requirements to qualify for the deduction. You need to use a portion of your home exclusively for conducting business on a regular basis and the home must be your principal place of business.
To claim the deduction, you must use part of your home for one of the following:
- Exclusively and regularly as a principal place of business for a trade or business
- Exclusively and regularly as a place where patients, clients or customers are met in the normal course of a trade or business
- As a separate structure that’s not attached to a home that is used exclusively and regularly in connection with a trade or business
- On a regular basis for storage of inventory or product samples used in a trade or business of selling products at retail or wholesale
- For rental use
- As a daycare facility
The term “home” for purposes of this deduction:
- Includes a house, apartment, condominium, mobile home, boat or similar property
- Includes structures on the property, like an unattached garage, studio, barn or greenhouse
- Doesn’t include any part of your property used exclusively as a hotel, motel, inn or similar business
Deductible expenses for business use of your home normally include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs. In general, you may not deduct expenses for the parts of your home not used for business; for example, expenses for lawn care or painting a room not used for business.
Claiming the deduction
You can use either the regular or simplified method to figure the home office deduction.
Using the regular method, qualifying taxpayers compute the business use of home deduction by dividing expenses of operating the home between personal and business use. Self-employed taxpayers filing IRS Schedule C, Profit or Loss from Business (Sole Proprietorship) first figure this deduction on Form 8829, Expenses for Business Use of Your Home.
Using the Simplified Option, qualifying taxpayers use a prescribed rate of $5 per square foot of the portion of the home used for business (up to a maximum of 300 square feet) to figure the business use of home deduction. A taxpayer claims the deduction directly on IRS Schedule C. Revenue Procedure 2013-13 provides complete details of this safe harbor method.