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.
Can I deduct my home office if I’m a remote employee?
If you are a W-2 employee, you probably cannot deduct your home office. This is because the Tax Cuts and Jobs Act eliminated the unreimbursed employee expenses deduction in 2018. Only those who are self-employed, filing with a 1099, or statutory employees can claim the deduction for business use of a home (home office).
What counts as a home office?
The IRS defines a home office based on these characteristics:
- The space was 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.
- You used the space regularly for business. The IRS wants to know that you consistently worked at home – not just temporarily
- The home office is where you did 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 all of these are true for you, then you might be able to deduct your home office expenses. If any of them don’t apply in your case, you can’t claim the deduction.
How much is the home office deduction?
The amount you can deduct 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.
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.
The information in this article is up to date through tax year 2021 (taxes filed 2022).