If I Run a Business From Home, Do I Qualify for Home Office Deductions?

Many people are working from home during the COVID-19 pandemic. If you’re self-employed and run your business from your home, or perform certain functions there, you may be able to claim deductions for home office expenses against your business income. There are two methods for claiming this tax break: the actual expenses method and the simplified method.

Do I qualify?

home office deductionsGenerally, you qualify for home office deductions if part of your home is used “regularly and exclusively” as your principal place of business.

If your home isn’t your principal place of business, you may still be able to deduct home office expenses if 1) you physically meet with patients, clients or customers on your premises, or 2) you use a storage area in your home (or a separate free-standing structure, such as a garage) exclusively and regularly for business.

What can I deduct?

Many eligible taxpayers deduct actual expenses when they claim home office deductions. Deductible home office expenses may include:

  • Direct expenses, such as the cost of painting and carpeting a room used exclusively for business
  • A proportionate share of indirect expenses, such as mortgage interest, rent, property taxes, utilities, repairs and insurance
  • Depreciation

Tracking actual expenses can take time and require organization, though.

What is the simpler method?

Fortunately, there’s a simplified method to claim the tax break: You can deduct $5 for each square foot of home office space, up to a maximum total of $1,500.

This cap can make the simplified method less valuable for larger home office spaces. Even for small spaces, taxpayers may qualify for bigger deductions using the actual expense method. So, tracking your actual expenses can be worth it.

Can I switch methods?

You’re not stuck with a certain method when claiming home office deductions. For instance, you might choose the actual expense method on your 2020 return, use the simplified method when you file your 2021 return next year and then switch back to the actual expense method for 2022. The choice is yours.

What if I sell the home?

If you sell a home at a profit that contains (or contained) a home office, there might be tax implications.

Be aware that the amount of your home office deductions is subject to limitations based on the income attributable to your use of the office. Other rules and limitations may also apply. However, home office expenses that can’t be deducted because of these limitations can be carried over and deducted in later years.

Do employees qualify?

Unfortunately, the Tax Cuts and Jobs Act suspended the business use of home office deductions from 2018 through 2025 for employees. Those who receive a paycheck or a W-2 exclusively from their employers aren’t eligible for deductions, even if they’re currently working from home.

Questions

We can help you determine if you’re eligible for home office deductions and how to proceed in your situation. Contact us today to discuss your specific circumstances.

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