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Is It Possible to Deduct the Cost of Your Home Office?

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Can you write off your home office? At a time when legions of Americans are suddenly working from home and may continue to do so indefinitely, this subject has never been more significant.

Whether you’re an independent contractor running a business from home or an employee of a company or corporation owned by someone else determines the answer to that query. Here’s a rundown of the dos and don’ts of deducting a home office from taxes.

Home office deductions are only available to self-employed people.

The home office deduction for individuals who work for someone else’s business was suspended from 2018 to 2025 as part of the Tax Cuts and Jobs Act. According to the IRS, the deduction is now available exclusively to qualifying self-employed taxpayers, independent contractors, and individuals operating in the gig economy.

“There are no possibilities to write off your home office if you are a W2 employee with no company entity [of your own,” explains CPA Mike Jesowshek, host of the Small Business Tax Savings podcast.

The deduction is not accessible if you just switched to working from home due to the epidemic and are an employee of a firm or corporation, as disappointing as this may be for countless people who are now working from home.

For qualified persons, certain requirements must be met to claim the deduction.
To qualify for the tax deduction, those who are self-employed as independent contractors or gig workers must use their home office to meet two basic standards stated by the IRS. The taxpayer must utilize a portion of his or her house exclusively for conducting business regularly, and the residence must be the taxpayer’s primary place of business.

Is It Possible to Deduct the Cost of Your Home Office
Is It Possible to Deduct the Cost of Your Home Office

The IRS goes on to say that to claim the deduction, a taxpayer must fill in the blanks with one of the following:

As a site where patients, clients, or customers are met in the normal course of a trade or business exclusively and regularly.
As a distinct structure that isn’t attached to a hose and is used exclusively and regularly in the course of a trade or company.
Used in a trade or business that sells things at retail or wholesale to store inventory or product samples.
“Having an office in your spare bedroom does not automatically qualify you for the deduction,” Tyler Davis, a CPA with Simplify LLC, explains. “Taxpayers should familiarise themselves with the criteria for calculating and qualifying for the deduction.”

It’s also worth noting that the IRS considers a house, apartment, condominium, mobile home, or even a boat to be a “home” for this deduction.

Take images to document your commercial use of the room when writing off home office space on annual tax returns. You might also keep track of what you do in the space. According to Jesowshek, this kind of documentation can come in handy if you’re ever audited.

Expenses that qualify

If you meet all of the space utilization standards stated above, you may be able to deduct a range of expenses on your annual tax return.

“A taxpayer may be eligible to deduct expenses such as mortgage interest, real estate taxes, insurance, utilities, maintenance, and depreciation for the space used if a portion of the home is used exclusively and consistently for business activities,” explains JustAnswer financial expert and CPA Angela Anderson.

Rent, casualty losses, and upkeep are among the expenses that can be deducted according to the IRS. In general, a taxpayer cannot deduct expenses for areas of their house that are not used for business, such as lawn care or painting a non-business room.

Is It Possible to Deduct the Cost of Your Home Office
Is It Possible to Deduct the Cost of Your Home Office

 

How to Take Advantage of the Deduction
Taxpayers can determine the proper home deduction for their annual tax returns using either the “standard” or “simplified approach,” according to the IRS.

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For business use of the residence, the simplified approach provides a rate of $5 per square foot, with a maximum permitted deduction of $1,500. This is how it works in practice:

“You determine the space of the residence used for the trade or business using the simplified technique,” explains Rob Burnette, CEO, financial counselor, and professional tax preparer for Outlook Financial Center in Ohio. “A maximum of 300 square feet is permitted.” Multiply the entire area by $5 to get the total area. The maximum deduction, in this case, would be $1,500.

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Using the standard technique may or may not result in a bigger tax deduction, but it requires substantial recordkeeping and calculations, according to Burnette.

Burnette adds that “home expenses must be divided into three categories: direct, indirect, and irrelevant.” “Direct expenses are costs incurred solely for the trade or commercial area of the home.”

Indirect costs, on the other hand, are the costs of maintaining and running the complete house (think phone bill, electricity bills, and more). According to Burnette, a percentage of these expenses can be deducted depending on business usage square footage divided by the total square footage of the home.

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Finally, unconnected expenses refer to portions of the residence that are not used for business or commerce, therefore thus are not deductible.

In Publication 587, which may be accessed here, the IRS gives guidance on everything connected to home office deductions, including how to compute the number of such deductions using the conventional and simplified formulas.

Keep meticulous records.

While there is no one-size-fits-all technique for keeping records, it is vital, according to Jesowshek, that you keep evidence of some form substantiating the home office deductions you’re claiming. It’s also a good idea to avoid going too far with the deductions.

“For a long time, claiming home office deductions has been a hot topic for the IRS,” Jesowshek explains. “Unless you want to be audited, my advice is to err on the side of caution rather than risk being audited if you claim the home office deduction.” To put it another way, keep your deductions to a minimum. “Don’t over-inflate them.”

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