Many companies have transitioned employees to working remotely for at least a portion of the time. If you set up a “home office,” you may be wondering if it qualifies for a tax deduction. This article explains the eligibility requirements and how to handle special circumstances for writing off the business use of your home.
Home office tax deduction requirements
Taxpayers who are self-employed, filing with a 1099, or statutory employees can claim the deduction for business use of a home (a home office). To qualify for the deduction, the office space must also meet certain requirements:
- The space is only used for work. Examples of spaces that would not qualify include a couch where you also spend time with family, a kitchen table where you also have meals, your whole bedroom where you spend free time and sleep. Examples of spaces that could qualify include a spare room used for an office, a desk set up in your bedroom, an office nook in your kitchen.
- The space must be used regularly for business. The IRS wants to know that you consistently worked at home – not just temporarily
- The home office is where you do most of your work. If most of your work is done in a different location like an office building or shop, you may not be able to write off your home office space
If any of these don’t apply in your case, you can’t claim the deduction.
Can I deduct my home office if I’m a remote employee?
If you’re a W-2 employee working remotely, you don’t qualify for the home office deduction.
Working remotely is not the same as being self-employed. If you’re unsure of your status, the IRS has criteria to help you determine whether you’re an independent contractor or an employee.
How much is the home office deduction?
The amount you can deduct for your home office depends on a few things, like the size of your space and the method you choose to calculate your tax deduction. There are two ways to figure out what you can deduct:
Using the regular method, you’ll calculate the size of your home office as a percentage of the total square footage in your home. Then, you’ll add up all the expenses related to your home (utilities, renovations and improvements, insurance, home mortgage interest, etc.) and deduct a percentage of the total. Other expenses directly related to your home office (supplies, furniture, etc.) can be totally written off.
The simplified method is easier to calculate. Using this method, you’ll deduct $5 per square foot of home office space, up to 300 square feet. Be aware: the maximum amount you can deduct using the simplified method is $1,500.
To estimate your deduction, measure your home office, then multiply by $5.
Special situations
Maybe your work-from-home situation is a little bit complicated. Here are some common examples and how to handle them on your return:
You and your spouse both worked from home
It’s possible for both of you to claim your home office spaces. Just know that you can’t claim the same space twice. So, each of you must have a separate qualified work area. And, if you’re using the simplified method, then the total area you claim cannot be larger than 300 square feet.
You only used your home office for part of the year
This could be the case if your business is seasonal, or you started/stopped working from home partway through the year. What you’ll do is calculate the average monthly allowable square footage. To do this, add up the amount of square feet you used each month, and then divide that number by 12 (for 12 months in a year). If there was a month that you worked less than 15 days in your office, use 0 for that month.
You run multiple businesses from home
If you have more than one workspace (for example: maybe you hold inventory, or you operate out of two different offices) you can add up the total square footage of all these areas to calculate your deduction.
Note: Each space must qualify (see the requirements above). And if you are using the simplified method, the maximum area you can deduct is still 300 square feet, total.
You moved partway through the year
This could impact how you calculate your deduction. That’s because the simplified method can only be used for one home per tax return. So, when you move partway through the year, you can use the simplified method for the home office in one home, but you’ll need to use actual expenses and the regular method to calculate the deduction for your other home.
Your home office got smaller (or bigger)
This is actually pretty simple. Add up the area of the home office space you used month by month, and divide the total by 12. This will give you your average monthly allowable square footage for the entire tax year.
Additional work-from-home tax deductions
If you’re self-employed and qualify for the home office deduction, you’ll most likely qualify for other deductions related to working from home. For example, as you set up your home office, you may need to purchase new tech, like a computer, printer, and software to do your job. The IRS allows you to deduct the cost of off-the-shelf software products the year you start using them.
Even though your home office is your primary spot for doing business, you may still need to commute to locations for work, or transport your products to a point of sale. In that case, business mileage could also be a deductible expense.
