Amid this global pandemic, a lot of people find themselves working from home, rather than traveling to an office. Because of this, there is more interest than usual in the home office deduction. Here’s what you need to know.
The home office 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 this deduction from 2018 through 2025 for employees. In other words, 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.
Qualifying for a deduction
There are two basic requirements to qualify for the deduction. You must (1) use a portion of the home exclusively for conducting business on a regular basis, and (2) the home must be the taxpayer’s principal place of business.
To claim the deduction, you must use part of your home for one of the following:
- Exclusively and regularly as you principal place of business
- Exclusively and regularly as a place where patients, clients or customers are met in the normal course of conducting your business
- As a separate structure that’s not attached to your home that is used exclusively and regularly in connection with your business
- On a regular basis for storage of inventory or product samples used in your business to sell 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 the business use of a home normally includes 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
If you qualify to take the home office deduction, you can use either the regular or simplified method to figure the amount you can deduct:
- Using the regular method, calculate the deduction by dividing expenses of operating the home between personal and business use.
- Using the Simplified Option, you can 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).
If you use your home to provide daycare services on a regular basis, you may be able to claim a deduction for part of the home even if that space is used for nonbusiness purposes. To qualify, both of the following requirements must be met:
- Your business must provide daycare for children, people age 65 or older, or people who are physically or mentally unable to care for themselves.
- Your business must have applied for, been granted, or be exempt from having a license, certification, registration, or approval as a daycare center or as a family or group daycare home under state law.
For help understanding if you might qualify to take the home office deduction, or in calculating the amount of your deduction, please contact our office so that we can help you.