How to Deduct Your Home Office as a Tax Expense

If you use a part of your home exclusively as your home office, you might be able to write off the expenses on your tax returns up to $10,000 if you don’t show a loss. You don’t have to live in a specific type of home and the deduction applies to both homeowners and renters.

The Tax Cuts and Jobs Act made it a lot easier for self-employed taxpayers to deduct their home office expenses. It doesn’t cause the red flag most people assumed, and it typically doesn’t cause more issues when you sell the home.

Here’s what you must know about deducting your home office expenses. 

Requirements to Claim the Home Office Deduction

To determine if you qualify for the home office deduction, you must pass two requirements.

Your Home must be a Principal and Regular Place of Business

To qualify, you must prove that you conduct most of your business in your home. This doesn’t mean you can’t do business outside of your home. For example, if you have the occasional meeting outside of your home, you will still qualify as long as you do a majority of the work in your home.

*You cannot rent any office space outside of your home to meet this requirement. In other words, you cannot pay rent to a landlord for office space. However, there is an exception if you rent a storage unit (not office space).

The Room must Have Exclusive Use

The room you designate for your home office cannot be used for any other purpose. For example, you can’t use your family room for your office by day and then use it as the TV room at night with the family and take the deduction. It must be a separate area of your home that’s only for business purposes.

*Your business must also not show a loss. In other words, if you show a loss on your tax returns, home business expenses cannot further worsen the loss.

How to Claim the Home Office Deduction

There are two ways to claim the home office deduction. You can take the simplified or regular deduction. Here’s how they work.

Simplified Deduction

The simplified deduction is a newer deduction and offers a ‘simple’ way to calculate your home office deduction.

With the simplified deduction, you take a standard deduction of $5 per square foot used for your home office up to a maximum of 300 square feet. You don’t have to provide as much paperwork or receipts as you would with the regular method, just like when you take the standard deduction versus itemized deductions on your personal income taxes.

Regular Deduction

The regular deduction requires you to deduct your actual expenses for your home office. An example of the expenses you might be able to include are:

• Mortgage interest
• Property taxes
• Homeowner’s insurance
• Utilities
• Home repairs
• Depreciation

You can deduct the percentage of the expenses based on the percentage of the office’s square footage compared to your home’s total square footage. If you don’t use an entire room for your office, but part of it, you must calculate the actual square footage used to take the deduction.

Final Thoughts

If you own a small business and operate it mostly from home, you might be eligible to deduct the expenses on your tax return. Choosing between the standard and regular deduction is a personal decision. You can determine how much you’d save from each with a few quick calculations to decide which is right for you.

For more information or tax guidance, contact the tax experts at Murtha and Murtha CPAs today.