Advanced technology has made it easier than ever to work from home, so more people find themselves working from an office in their house, either full time or part time, spending some days at home and some at the office building.
A home office deduction can be valuable, but simply having an office space doesn’t qualify you for the deduction, there are additional requirements.
Regularly and exclusively
In order to be deductible for 2019 and 2020, you must be self-employed and the space must be used regularly (not just occasionally) and exclusively for business purposes. If, for example, your home office is also a guest bedroom or your children do their homework there, you can’t deduct the expenses associated with the space.
If you qualify, the home office deduction can be a valuable tax break. There are two options for the deduction:
Write off a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, as well as the depreciation allocable to the office space. This requires calculating, allocating and substantiating actual expenses.
Take the “safe harbor” deduction. Only one simple calculation is necessary: $5 times the number of square feet of the office space. The safe harbor deduction is capped at $1,500 per year, based on a maximum of 300 square feet.
Changes through 2025
Under prior tax law, if you were an employee (as opposed to self-employed), you could deduct unreimbursed home office expenses as employee business expenses, subject to a floor of 2% of adjusted gross income (AGI) for all your miscellaneous expenses. To qualify under prior law, a home office had to be used for the “convenience” of your employer.
Unfortunately, the TCJA suspends the deduction for miscellaneous expenses through 2025. Without further action from Congress, employees won’t be able to benefit from this tax break for a while. However, deductions are still available to self-employed taxpayers.
If, however, you’re self-employed, you can deduct eligible home office expenses against your self-employment income. Therefore, the deduction will still be available to you through 2025.
This is not an exhaustive list of requirements for the home office deduction. If you are self-employed and think you may qualify but want to know more, please contact your Rudler, PSC advisor 859-331-1717.
RUDLER'S TAX MANAGEMENT & PLANNING TEAM
This week's Rudler Review is presented by Becca Johnson, Staff Accountant and John Wood, CPA, CVA.
If you would like to discuss your particular tax situation, contact Becca or John at 859-331-1717.
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