Home Office Deduction: Can You Claim This Tax Break If You Work from Home?

Posted by Ronald J. FicheraJul 29, 20220 Comments

If you're working from home, your employment status determines whether you can claim the home office deduction on your tax return.

Like millions of other Americans, you may be working from home a lot. Perhaps you're even a full-time remote employee. There are certainly financial advantages to working from home, like saving money on commuting costs, work clothes and lunches. But, on the other hand, there are probably other unreimbursed expenses draining your wallet. For instance, you're probably paying for printer paper and ink, note pads, and other office supplies. Plus, your electric and other utility bills are likely higher since you're at home all day. And maybe you had to upgrade your Wi-Fi, too. Wouldn't it be nice if you could claim a tax deduction for your home office expenses on your next tax return?

Employees Miss Out

If you're a regular employee working from home, I'm sorry to say that you can't deduct any of your related expenses on your tax return.

Self-Employed People Cash In (Maybe)

If you're self-employed, you may be in luck. Self-employed people can deduct office expenses on Schedule C (Form 1040) whether they work from home or not. This write-off covers office supplies, postage, computers, printers, and all the other ordinary and necessary stuff you need to run an office.

Plus, the home office deduction may also be available if you're self-employed — if you can satisfy all the requirements. This tax break covers expenses for the business use of your home, including mortgage interest, rent, insurance, utilities, repairs, and depreciation. It doesn't matter what type of home you have, either — single family, townhouse, apartment, condo, mobile home, or even a boat. You can also claim the deduction if you worked in an outbuilding on your property, such as an unattached garage, studio, barn, or greenhouse. But you can't claim the home office deduction for any part of your home or property used exclusively as a hotel, motel, inn, or the like.

"Exclusive use" means you use a specific area of your home only for your trade or business. The space doesn't have to be marked off by a permanent partition. You can't claim the home office deduction if you use the space for both business and personal purposes. However, the exclusive use requirement might not apply if you use part of your home:

  • For the storage of inventory or product samples; or
  • As a daycare facility.

The space must also be used:

  • As your principal place of business for your trade or business;
  • To meet or deal with your patients, clients, or customers in the normal course of your trade or business; or
  • In connection with your trade or business if it's a separate structure that's not attached to your home.

(See IRS Publication 587 for more information about these and other requirements for the home office deduction.)

If you qualify, there are two ways to calculate the home office deduction. Under the "actual expense" method, you essentially multiply the expenses of operating your home by the percentage of your home devoted to business use. If you work from home for part of the year, only include expenses incurred during that time. Under the "simplified" method, you deduct $5 for every square foot of space in your home used for a qualified business purpose. Again, you can only claim the deduction for the time you work from home. For example, if you have a 300-square-foot home office (the maximum size allowed for this method), and you work from home for three months (25% of the year), your deduction is $375 ((300 x $5) x 0.25).

Tax Tip: If you use the simplified method, you can't depreciate the part of your home used for business. However, to the extent you qualify, you can still claim itemized deductions for mortgage interest, real property taxes, and casualty losses for your home without allocating them between personal and business use.

The deduction is claimed on Line 30 of Schedule C (Form 1040). If you use your home for more than one business, file a separate Schedule C for each business. Don't combine your deductions for each business on a single Schedule C.

If you use the actual expense method to calculate the tax break, also complete Form 8829 and file it with the rest of your tax return. If you use more than one home for business, you can file a Form 8829 for each home or use the simplified method for one home and Form 8829 others. Combine all amounts calculated using the simplified method and amounts calculated using Form 8829, and then enter the total on Line 30 of the Schedule C you file for the business.

Employees with a Side Gig?

If you're an employee at a "regular" job, but you also have your own side hustle, you can claim deductions for business expenses and the home office deduction for your own business — if you meet all the requirements. Being an employee doesn't mean you can't also claim the deductions you're entitled to as a self-employed person.

Are you looking for legal advice? RJ Fichera Law Firm can help with strategic business planning, including legal organization and business structuring. Call today for a free consultation. 610-768-9255

This article was provided by Kiplinger Magazine and brought to you by the Ronald J. Fichera Law  Firm, where our mission is to provide trusted, professional legal services and strategic advice to assist our clients in their personal and business matters. Our firm is committed to delivering efficient and cost-effective legal services focusing on communication, responsiveness, and attention to detail. For more information about our services, contact us today!

This is not tax advice and should not be construed as such.  Please seek professional tax services for more information and advice that will apply to your specific tax situation.