INDIVIDUAL TAX | 08/25/2024
During the COVID-19 pandemic, many people transitioned to working from home, a trend that continues today with many still operating from their home offices either full-time or on a hybrid basis. If you’re self-employed and manage your business from home, or handle specific tasks there, you might be eligible to claim deductions for home office expenses against your business income. There are two methods to claim this tax break: the actual expense method and the simplified method.
How to Qualify
Generally, you qualify for home office deductions if a part of your home is used “regularly and exclusively” as your primary place of business.
Even if your home isn’t your main place of business, you may still deduct home office expenses if:
- You regularly meet with patients, clients, or customers at your home, or
- You use a specific area in your home (or a separate structure like a garage) solely and regularly for business purposes.
Deductible Expenses
Many taxpayers opt to deduct actual expenses when claiming home office deductions. These deductible expenses can include:
- Direct expenses, such as the cost of painting and carpeting a room used solely for business.
- A proportionate share of indirect expenses, including mortgage interest, rent, property taxes, utilities, repairs, and insurance.
- Depreciation.
However, tracking these actual expenses requires detailed and organized recordkeeping, which can be time-consuming.
The Simpler Method
Thankfully, there is a simplified method available. You can deduct $5 for each square foot of home office space, up to a maximum of $1,500.
This simplified method might be less beneficial for larger home office spaces. Even for smaller spaces, the actual expense method can sometimes yield larger deductions, making it worthwhile to track your actual expenses.
Switching Methods
When claiming home office deductions, you can change your method from year to year. For example, you might use the actual expense method on your 2022 return, switch to the simplified method for your 2023 return, and then revert to the actual expense method for 2024. The choice is flexible and yours to make.
What if I Sell the Home?
Selling a home at a profit, where you’ve claimed home office deductions, can have tax implications. We can provide detailed explanations and guidance on this.
Also, note that your home office deductions are subject to limitations based on the income attributed to your home office use. Any home office expenses that can’t be deducted due to these limitations can be carried over and deducted in future years.
Different Rules for Employees
Unfortunately, the Tax Cuts and Jobs Act suspended home office deductions for employees from 2018 through 2025. Employees receiving paychecks or Form W-2s aren’t eligible for these deductions, even if they’re working from home because their employers’ offices are closed due to COVID-19.
We can help you determine if you’re eligible for home office deductions and guide you on how to proceed based on your specific situation.