What is a home office deduction?
Whether you’re a homeowner or a renter, you may be able to deduct expenses related to the use of your home for remote work, but only if you’re an independent contractor or otherwise self-employed. The federal home office deduction may include rent or mortgage (based on the time and space dedicated to work) and other expenses incurred for work purposes.
Choose between the standard and simplified methods.
There are two methods for calculating your deduction for your taxes. You can use either the standard method for calculating your deduction or you may opt for the “simplified” deduction method. If you calculate your deduction using both methods, you’ll be able to determine which one is favorable before you file your tax return.
The key difference is that the standard method requires you to work out the percentage of your home’s square footage dedicated to business use, while calculating other expenses such as utilities, repairs, insurance, and depreciation. Generally, the simplified method provides for a standard deduction of $5 per square foot of home used exclusively for business purposes (up to 300 square feet), but you may still claim itemized deductions such as mortgage interest and real estate taxes on the Schedule A form.
Use Form 8829 for the standard method.
IRS Form 8829 (Expenses for Business Use of Your Home) is intended for use with the standard method. You do not have to use Form 8829 for the simplified version.
For certain types of expenses listed on Form 8829, there are two columns: direct expenses and indirect expenses. The former are expenses that you would not have incurred if not for the home office (soundproofing, for example), while the latter are expenses you would have incurred anyway, such as your total rent. You may deduct the total amount of direct expenses, while indirect expenses are based on the percentage of your home used exclusively for work.
Are there tax deductions available to remote or hybrid employees for expenses related to working from home?
Unfortunately, employees are not eligible for the home office deduction, regardless if they are remote full or part-time. Prior to tax year 2018, employees could deduct home office expenses as long as they passed the “convenience of employer” test. The Tax Cuts and Jobs Act (TCJA), passed in late 2017, however, eliminated the home office deduction for employees. So, even if you’re unable to work in an office because of a mandatory shutdown, or your employer requiring employees to work remotely, you’re no longer able to take the home office deduction.
The Tax Cuts and Jobs Act also eliminated other unreimbursed employment-related expenses, such as professional business license fees, work-related supplies, and travel expenses.
What are the eligibility requirements for the home office deduction?
The home office deduction (aka Business Use of Your Home) is available to anyone who works remotely as an independent contractor or is otherwise self-employed. However, this does not include profit-seeking activities that are not part of a trade or business. For instance, you may not take the home office deduction just because you regularly trade stocks online.
There are a few basic criteria for determining whether you can write off work-from-home expenses on your tax return. To qualify for either method of calculating the deduction, the following requirements apply:
- Regular and exclusive use. The portion of your home used for remote work may not also be used for personal purposes. A dedicated room or even a portion of a room would qualify, for example, but not the kitchen table.
- Principal place of business. The home office for which you’re seeking a deduction is required to be the primary place where you do your work, and you can’t have another location where you conduct a substantial amount of business.
There are a couple of exceptions to these requirements. You may take the home office deduction:
- If you run a daycare business, regardless of whether the space in question is also used for personal activities.
- For any portion of your home that is regularly used to store inventory or product samples, even if it’s not your principal place of business.
Be sure to take advantage of the home office tax deduction.
If you have been working from home for a while, then you surely realize the additional expenses that may occur as a result. It can be difficult to know which deductions and tax credits you qualify for and how to claim those on your tax return. Rocket Tax™ can match you with a tax pro who will prepare and file your taxes for you, taking the hassle out of tax season. A tax pro will take the time to understand your specific situation and try to help you recoup some of these expenses. If you have questions about tax laws, you can also reach out to a Rocket Lawyer network attorney for affordable legal advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
