Home Office Tax Deductions

The home office deduction allows qualifying taxpayers to deduct certain home expenses on their tax returns. With more people working from home than ever before, some of you may be wondering if you can claim a home office deduction when you file your 2020 tax return next year.

Here are some things to help you understand the home office deduction and whether you can claim it:

  • Employees- those of you that get a W-2, are not eligible to claim the home office deduction. 
  • That also means that if your company is taxed as an S Corporation and you are the Shareholder/Employee – No deduction.
  • The home office deduction Form 8829 is available to both homeowners and renters.
  • There are certain expenses you can deduct. They include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.
  • You must meet specific requirements to claim home expenses as a deduction. Even then, the deductible amount of these types of expenses may be limited.
  • The term “home” for purposes of this deduction:
    • Includes a house, apartment, condominium, mobile home, boat or similar property
    • Includes structures on the property: These are places like an unattached garage, studio, barn or greenhouse
    • This doesn’t include any part of your property used exclusively as a hotel, motel, inn, or similar business.
  • There are two basic requirements for your home to qualify as a deduction:
    • There must be exclusive use of a portion of the home for conducting business on a regular basis. For example, if you use an extra room to run your business, you can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.
    • The home must be your principal place of business. You can also meet the regular and exclusive requirement if administrative or management activities are conducted at home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home but also uses their home to conduct business may still qualify for a home office deduction.
  • Expenses that relate to a separate structure not attached to the home will qualify for a home office deduction. It will qualify only if the structure is used exclusively and regularly for business.
  • For those of you who qualify, you may choose one of two methods to calculate your home office expense deduction:
    • The simplified option has a rate of $5 a square foot for business use of the home. The maximum size for this option is 300 square feet. The maximum deduction under this method is $1,500.
    • When using the regular method, deductions for a home office are based on the home’s percentage devoted to business use. Taxpayers who use a whole room or part of a room for conducting their business need to figure out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full.

 

With more people working from home than ever before, some of you may be wondering if you can claim a home office deduction when you file your 2020 tax return next year.

Contact us to discuss your tax deduction options with our CPA.

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