Who Qualifies for the Home Office Deduction?
The Tax Cuts and Jobs Act (TCJA) of 2017 revised tax law such that you can no longer deduct home office expenses if you are an employee. The change applies to tax years 2018 through 2025. Note the distinction, however, that this change only applies to employees. Those who are self-employed or independent contractors, including gig workers and freelancers, may continue to deduct qualifying home office expenses. This is usually accomplished via form 8829, Expenses for Business Use of Your Home, which is filed on your 1040 along with your Schedule C.
The Fine Print
Qualifying for this tax deduction is about more than simply falling into one of the classes of workers who are not prohibited by the TCJA. In order to deduct home office expenses, part of your home must be “exclusively and regularly for your trade or business” and your home must also be your principal place of business. Ostensibly, your home must be your true office and contain space that is used just for business. This is different than working from home sometimes simply because it’s more convenient than commuting to your office building. It also means that you can only deduct expenses related to your actual workspace. So, the printer you purchased for your desk can be deducted, but the new coffee maker in your kitchen cannot be, even if you work at the kitchen table once in a while, because it’s not the sole purpose of your kitchen.
However, it should be noted that it’s not necessary to have a room in your home entirely dedicated to work in order to qualify for this deduction. It’s also admissible to have dedicated space in a room that is also used for other purposes. In this scenario, you would just need to calculate what percentage of the space is dedicated to your work.
For many years, taxpayers who needed to calculate the amount of space used for work had to figure out how much of their space was attributable to business, compare it with the total, and then deduct accordingly. So, for example, if your home office is 200 square feet and your home is 2,000 square feet, you were permitted to claim 10 percent of all your home-related expenses. This included mortgage interest, taxes, insurance, and more. This is still an option and one that many taxpayers continue to use.
Since 2013, there has also been a simpler way to claim the home office deduction. In the simplified option, the IRS allows you to claim a standard deduction of $5 per square foot of home used for business purposes, up to a maximum of 300 square feet. So, in keeping with the example above, a 200-square-foot office would mean you could claim $1,000 as a home office deduction.
If you’re an employee – especially one newly working from home during the pandemic – you may be mourning the loss of the home office deduction right about now. Keep in mind that, even if you won’t get to take advantage of this particular benefit, you may very well be saving money on commuting, on lunches out with clients or coworkers, and more. Take advantage of your working from home situation in the ways that you’re able and make the most of this unique time in your working life.
If you still qualify for the home office deduction and you have specific questions, be sure to talk with your tax advisor or other tax professional.
Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.