As it turns out, many people are eligible for home office tax deductions. The IRS provides tax deductions for many workers who have a dedicated home office. However, not everyone who works from home is eligible for a deduction. Here’s what you need to know before you file your taxes.
Who Qualifies for a Home Office Tax Deduction?
To qualify for a home office deduction, you must regularly use part of your home exclusively for conducting business, according to the IRS.
Offices set up in a spare room or a dedicated area in their basement often qualify for a deduction. On the other hand, a laptop on the table where your family eats dinner doesn’t count. Your office doesn’t have to be walled off from the rest of the house, but it does need to be in a part of your home where you don’t do anything else.
Keep in mind that your home office doesn’t have to be the only place you work. If you have a job that requires meeting clients in their homes or workplaces, your home office still qualifies for deduction as long as your administrative work is done there.
Don’t assume you’re eligible for a deduction just because you were in the past. The Tax Cuts and Jobs Act eliminated the home office tax deduction for employees who work from home for an employer. However, many self-employed people are still eligible.
What Home Office Expenses are Tax Deductible?
There are two ways to calculate your home office tax break: the simplified option and the standard option.
The simplified option lets you deduct $5 per square foot of your home office, up to 300 square feet. As long as your home office qualifies for the deduction, you can take this tax break without having to keep specific records of your expenses.
To use the simplified method, take the deduction on Schedule C when you report your business income and expenses.
The standard option is more complicated, but usually allows you to take a larger deduction. With this method, you deduct a portion of certain overall expenses based on the percentage of your home that you use as a home office. You will need to measure the square footage of your home office (e.g. your desk and the five feet around it) and calculate what percentage of your home it takes up.
For example, if your home office takes up 15% of the total square footage of your home, you can deduct 15% of the total cost of rent or mortgage interest, homeowner’s or renter’s insurance, and utilities. If you own your home, you can also deduct a portion of your property taxes and depreciation using the instructions on Form 8829.
To use the standard method, submit Form 8829 with your income tax return and then report the total deduction on Schedule C.
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