Claiming Home Office Expenses On Taxes Post-Covid

Working from home has become the new normal for many people, and with that comes the question of whether you can claim a home office deduction on your taxes. The short answer is: it depends. There are a few factors that come into play when determining if you can claim this deduction. Firstly, your employment status matters. If you're a regular employee working remotely, unfortunately, you don't qualify for the home office tax deduction. However, if you're a contractor or have a side business, with income reported via Form 1099, you may be eligible. This is because, as a self-employed individual, you can generally deduct office expenses on Schedule C (Form 1040), including office supplies, computers, and printers.

Additionally, your workspace must meet certain IRS guidelines. It should be used regularly and exclusively as your principal place of business. This means that you can't use the space for both business and personal purposes, but there are exceptions for using your home as a daycare facility or storing inventory.

If you qualify for the home office deduction, there are two methods to calculate it: the simplified option and the regular method. The simplified option offers a standard deduction of $5 per square foot of your home office, up to a maximum of 300 square feet and $1,500. On the other hand, the regular method is more complex and is based on the percentage of your home used for business, including actual expenses like mortgage interest, insurance, and utilities.

It's important to note that the rules and eligibility criteria may vary based on your location and tax year, so be sure to consult official sources or a tax professional for the most accurate and up-to-date information.

Employees are ineligible for the home office deduction

Prior to the Tax Cuts and Jobs Act (TCJA) passed in 2017, employees could deduct unreimbursed employee business expenses, including the home office deduction, as miscellaneous itemized deductions on Schedule A. However, for tax years 2018 through 2025, these deductions for employee business expenses have been eliminated.

If you are a freelancer, have a side hustle, or run your own business in addition to your W-2 job, you may be able to take the home office deduction. However, it's important to note that the office or space where you conduct this separate self-employed business cannot be the same space where you work as an employee.

To qualify for the home office deduction, there are two basic requirements that must be met:

• Exclusive Use: A portion of the home must be used exclusively and regularly for conducting business. This means that the space cannot be used for any personal activities or contain any personal-use furnishings.
• Principal Place of Business: The home office must be the primary location of your business or a place where you regularly meet with customers or clients. If your home office is used for administrative or management activities, it can still qualify as the principal place of business if there is no other fixed location to perform these duties.

Self-employed people can deduct office expenses

United States

In the US, self-employed people can deduct a portion of their mortgage or rent, property taxes, the cost of utilities, repairs, maintenance, and similar expenses. Calculate the percentage of your home's square footage that you use "exclusively and regularly" for business, and that percentage of your mortgage or rent, for example, becomes deductible.

You can also choose the simplified option, which lets you deduct $5 per square foot of home used for business, up to 300 square feet. This option allows you to keep fewer records, but you might end up with a lower deduction, so consider calculating it both ways before filing.

Canada

In Canada, eligible employees who worked from home in 2020, 2021, or 2022 due to the COVID-19 pandemic can claim $2 for each day they worked from home in those years. They can also claim up to a maximum per year of $400 in 2020 and up to $500 in 2021 and 2022.

Eligible employees can also claim the actual amounts they paid, supported by documents. This includes work-space-in-the-home expenses, office supplies, and phone expenses.

United Kingdom

In the UK, self-employed people can deduct office costs such as stationery and phone bills. If you work from home, you may be able to claim a proportion of your costs for things like mortgage interest or rent and internet and telephone use. You will need to find a reasonable method for dividing your costs, for example, by the number of rooms you use for business or the amount of time spent working from home.

Home office expenses include mortgage interest, insurance, utilities, repairs, and depreciation

If you work from home, you may be able to deduct certain expenses related to your home office when filing your taxes. These expenses include mortgage interest, insurance, utilities, repairs, and depreciation.

To claim these deductions, you must meet specific requirements, and even then, the deductible amount of these expenses may be limited. Firstly, you must use part of your home exclusively and regularly for conducting business. This could be an extra room that you use as your primary place of business or a separate structure on your property, such as an unattached garage or studio.

Secondly, you need to calculate the percentage of your home devoted to business activities. This will determine the amount you can deduct for expenses like utilities, repairs, and depreciation. For example, if you use 10% of your home for business, you can deduct 10% of your utility bills, repair costs, and so on.

It's important to note that you can only deduct the business percentage of your homeowner's or renter's insurance as part of the home office deduction. Any costs of business insurance or special home office policy riders are fully deductible as ordinary business expenses.

Additionally, when it comes to repairs and improvements, the IRS differentiates between the two. Repairs are generally deductible in the year they are made, while improvements must be depreciated over the property's useful life. Repairs include patching walls and floors, painting, repairing roofs and gutters, fixing a furnace or air conditioner, and mending leaks. Improvements include installing new flooring, roofs, gutters, furnaces, or air conditioners.

Finally, if you are a homeowner, you can also claim a depreciation deduction to recover some of the home's purchase price. Depreciation is a way to recover the cost of an asset over its useful life. By claiming depreciation, you can reduce your annual tax bill and increase the amount of gain you can exclude from income when you sell your home.

The home office deduction is calculated using either the simplified or regular method

The home office deduction is a way for qualified taxpayers to deduct certain home expenses when they file their taxes. The deduction is available to both homeowners and renters. There are two methods to calculate the home office deduction: the simplified option and the regular method.

The simplified option is a straightforward way to determine the amount of expenses you can deduct for qualified business use of your home. This method was introduced to reduce the burden of complex calculations and allocation requirements on small business owners. Using the simplified option, you can claim a standard deduction of $5 per square foot of home used for business, up to a maximum of 300 square feet and a maximum deduction of $1,500. This method simplifies the calculation and record-keeping requirements, but it may not always result in the highest possible deduction.

On the other hand, the regular method involves determining the percentage of your home devoted to business use. If you use a whole room or part of a room for business, you need to calculate the percentage of your home used for business activities to deduct indirect expenses. Direct expenses are deducted in full. This method may be more complex, but it can result in a higher deduction, especially if you have high home-related expenses or business income.

You can choose either the simplified or regular method for any taxable year, but once you have chosen a method for that year, you cannot change it. If you switch between methods in different years, you will need to make additional calculations and considerations, especially regarding depreciation.

Employees with a side business can claim the home office deduction

If you're an employee with a side business, you may be able to claim a home office deduction on your taxes. Here's what you need to know:

Eligibility

To be eligible for the home office deduction, you must use part of your home exclusively and regularly for your business. This means that the area you use for your business cannot be used for any personal purposes and cannot contain any personal-use furnishings. Your home office must also be your main place of business or a place where you meet with clients or customers. If you have more than one business location, your home office must be the principal place of business based on the relative importance of the activities performed at each location and the amount of time spent at each location.

Additionally, you must meet specific requirements to claim home expenses as a deduction, and the deductible amount of these types of expenses may be limited.

Expenses You Can Claim

If you're eligible for the home office deduction, there are two methods you can use to calculate your deduction: the simplified option and the actual expenses method.

Simplified Option

The simplified option allows you to deduct a standard deduction of $5 per square foot of your home used for business, up to 300 square feet. The maximum deduction under this method is $1,500. This method simplifies your calculations and records, but it may not result in the largest possible deduction.

Actual Expenses Method

The actual expenses method is more complex but may result in a larger deduction. This method allows you to deduct direct expenses, such as painting and repairs solely in the home office area, in full. You can also deduct indirect expenses, such as mortgage interest, insurance, utilities, and repairs, based on the percentage of your home used for business. For example, if your home office takes up 15% of your home, you can deduct 15% of your indirect expenses.

Forms and Records

To claim the home office deduction, you may need to fill out specific forms, such as Form T777 or Form T2200, and keep records of your expenses and supporting documents for several years. The specific forms and requirements may vary depending on your location and tax regulations.

It's important to carefully review the eligibility criteria and consult official government sources or a tax professional to ensure you meet all the requirements and understand the specific deductions available to you.

Frequently asked questions