More and more people are working from home, especially during the COVID-19 pandemic. If you spend time working at home, you may wonder whether you can deduct expenses related to your home office space.
Unfortunately, if you are an employee of a company, 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 home office deductions, even if they’re currently working from home.
However, if you are self-employed and run your business from your home or perform certain functions there, you might be able to claim deductions for home office expenses against your business income. In general, 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 exclusively and regularly for business.
There are two methods for claiming this deduction: the actual expenses method and the simplified method.
What can you deduct under the actual expense method?
Under this method, your 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, including mortgage interest, rent, property taxes, utilities, repairs and insurance, and
- Depreciation.
When you use the actual expense method, you must keep good records of these expenses, which can take time and require a system of organization.
How does the simplified method work?
Under the simplified method, you can deduct $5 for each square foot of home office space, up to a maximum total of $1,500. For example, if your home office is a 10×10 room, your deduction would be $500 (100 square feet x $5).
Can I switch between methods?
When claiming home office deductions, you’re not stuck with a particular method. 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 my home?
If you sell your home that contains (or contained) a home office, there may be tax implications. A portion of any gain may become taxable especially when claiming depreciation deductions under the actual expense method.
We can help you determine if you’re eligible for home office deductions and how to proceed in your situation.
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