Home Office Write-Off: Claiming Your Space

The home office deduction is a tax break for self-employed people who use part of their home for business activities. It allows taxpayers to deduct certain home expenses when filing their taxes. To qualify for the home office deduction, you must meet specific criteria set by the IRS. These criteria include exclusive and regular use of a portion of the home for business purposes, and having the home office as the principal location of your business or a place where you regularly meet with customers or clients. Employees who work from home cannot claim this deduction, but those with a side business may be eligible if they meet the requirements.

Employees working from home cannot claim tax deductions

Since the 2018 tax reform, at-home expense deductions for employees have been reduced but remain for self-employed workers. This means that employees working from home cannot claim tax deductions for their unreimbursed employee expenses or home office costs on their federal tax return.

Who can claim tax relief?

You can claim tax relief if you have to work from home, for example, if:

• Your job requires you to live far away from your office
• Your employer does not have an office

Who cannot claim tax relief?

You cannot claim tax relief if you choose to work from home. This includes if:

• Your employment contract lets you work from home some or all of the time
• You work from home because of the coronavirus pandemic
• Your employer has an office, but you cannot go there sometimes because it's full

You can only claim for things related to your work, such as:

• Business phone calls
• Gas and electricity for your work area

You cannot claim for things that you use for both private and business use, such as rent or broadband access.

You can either claim tax relief on:

• £6 a week from 6 April 2020 - you will not need to keep evidence of your extra costs
• The exact amount of extra costs you've incurred above the weekly amount - you’ll need evidence such as receipts, bills or contracts

You’ll get tax relief based on the rate at which you pay tax.

If you are self-employed, you may have heard that taking the home office deduction sends a red flag to the IRS and increases your chances of being audited. However, changes in the tax rules in the late 1990s made it easier for people who work out of their homes to qualify for these write-offs. So if you qualify, you can claim the deduction.

Self-employed people can claim office expenses

The home office deduction is one of the more complex tax breaks. The cost of any workspace that you use regularly and exclusively for your business, whether you rent or own it, can be deducted as a home office expense. The expenses you can deduct for your home office include the business percentage of rent, deductible mortgage interest, utilities, homeowners insurance, and repairs you pay for during the year.

There are two methods for calculating your home office deduction: the regular method and the simplified method. With the regular method, your tax deduction is based on the percentage of your home that your office occupies. You can deduct direct business expenses in full. Then, divide your office's square footage by your home's square footage and multiply the resulting percentage by the amount you spent on allowable house expenses to get a bigger deduction.

The simplified method is a quicker method that lets you multiply an IRS-determined rate by your home office's square footage. You basically multiply your office's total square feet by $5. Up to 300 square feet can be calculated, so the maximum amount you can claim for a deduction is $1,500. With this option, you cannot deduct depreciation or home-related itemized deductions.

Calculate the deduction using both the regular and simplified methods to determine which will give you the greater benefit. If you choose the regular method, you'll need to outline your deductions on IRS Form 8829, Expenses for Business Use of Your Home.

It's important to note that the home office deduction is only available to self-employed people and independent contractors. Employees who work from home cannot claim this deduction for the tax years 2018 through 2025 due to the Tax Cuts and Jobs Act (TCJA).

Home office expenses can be calculated using the simplified or direct method

Home office expenses can be calculated using either the simplified or the regular method. The simplified method was introduced in 2013 to simplify the calculation of allowable deductions for your home office. This method is faster but may not yield as many deductions.

To calculate your deductions with the simplified method, you need to know:

• The allowable area of your home used in conducting the business. If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month.
• The gross income from the business use of your home.
• The amount of your business expenses that are not related to the use of your home.

Once you have this information, you can calculate your deduction as follows:

• Multiply the allowable area by $5 (or less than $5 if the qualified business use is for a daycare that uses space in your home on a regular, but not exclusive, basis).
• Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. If these expenses are greater than the gross income from the business use of the home, then you cannot take a deduction for this business use of the home.
• Take the smaller of the amounts from steps 1 and 2. This is the amount you can deduct for this qualified business use of your home using the simplified method.

The regular method, also known as the actual expenses method, values your home office by measuring actual expenditures against your overall residence expenses. You can deduct mortgage interest, taxes, maintenance and repairs, insurance, utilities, and other expenses. You can use Form 8829 to figure out the expenses you can deduct.

The choice of whether to use the simplified deduction or to deduct actual expenses depends mainly on which would net you the bigger tax deduction.

Expenses that can be claimed include mortgage interest, insurance, utilities, repairs, and depreciation

There are a variety of expenses that can be claimed as deductions for a home office. These include mortgage interest, insurance, utilities, repairs, and depreciation.

Mortgage interest is an eligible expense for homeowners. However, principal mortgage payments are not deductible.

Insurance is another expense that can be claimed. This includes property insurance for homeowners and renters' insurance for those who rent their homes.

Utilities such as electricity, heat, and water are also deductible. If you live in a condominium, you can claim the utilities portion of your condo fees.

Minor repairs and maintenance costs related to your home office are also eligible for deduction. This includes expenses such as light bulbs, shades, and outlet installations.

Finally, depreciation is a required deduction when using the actual expenses method. It refers to an income tax deduction that allows taxpayers to recover the costs of property due to wear and tear, deterioration, or obsolescence. However, depreciation may be subject to capital gains tax when you sell your home.

It is important to note that the rules and regulations regarding home office deductions may vary based on your location and tax jurisdiction. It is always a good idea to consult with a tax professional or refer to the official government guidelines to ensure you are claiming deductions correctly and in compliance with the applicable tax laws.

The home office deduction is claimed on Line 30 of Schedule C (Form 1040)

The simplified method multiplies the square footage of the home office by a rate of $5 per square foot, with a maximum of 300 square feet. This method is limited to a maximum deduction of $1,500.

The regular method requires dividing expenses between personal and business use. Self-employed taxpayers file Form 1040, Schedule C, and compute this deduction on Form 8829. This method allows for the deduction of repairs and maintenance, utilities, insurance, and depreciation. While allocable expenses such as utilities, insurance, and depreciation cannot create a business loss, they can be carried forward to the next year.

The home office deduction is available to self-employed individuals who use a portion of their home for their business on a regular basis. This includes structures on the property, such as an unattached garage, studio, barn, or greenhouse. The home office must be the principal location of the business or a place where the taxpayer regularly meets with customers or clients.

Expenses that qualify for the home office deduction include mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent.

Frequently asked questions