Do you qualify for a home office tax deduction?

So many people work from home nowadays. Even before the pandemic, some of the biggest and best employers were trending towards more flexible work schedules and remote work options. Here we are almost one year into the Covid-19 pandemic and it seems that working from home is more the norm rather than the exception. Those of us who always dreamed of being able to work from home often imagined how ideal it would be to not have to commute into the office, not have to give face-time to management, not have to shave or get fully dressed. Now that most of us have gotten a taste of it, we can’t wait for things to return to normal, especially if we share our workspace with little “distance-learners.”

If there is one thing this pandemic has taught us, it is that we have to always look for the silver lining; that’s what keeps us motivated and optimistic when times are tough. Wouldn’t it be nice if there were some kind of tax benefit associated with working from home? Well, for some taxpayers, there might be, and it’s called the home office deduction.

First of all, don’t even think about claiming this expense unless you are self-employed. If you are self-employed, you would report the home office tax deduction on your Schedule C. The requirements are fairly strict, so not everyone who does work out of their home will qualify, and if you get too aggressive with this deduction, then you might get audited. You can claim a separate structure such as a barn or garage, an entire room in your home, or even a portion of a room, but whatever area you claim must be your principal place of business and it must pass the “exclusive & regular use” test. You must use this area exclusively for conducting your business, and you must conduct business there on a regular basis. Obviously, the more difficult element is exclusivity. If you use the claimed area for any other purpose besides for your business, then it does not qualify.

If you do in fact qualify for the home office deduction, the calculation is fairly simple: you would measure the square footage of the work area and divide it by the total area of the house to arrive at a percentage. Then the percentage is used to determine what fraction of your overall bills (rent, utilities, maintenance, etc.) can be claimed. There is also a simplified method whereby you are allowed $5.00 per square foot, (capped at $1,500 maximum deduction) without regard to actual expenses.

What about the increased costs associated with working at home such as faster internet, higher utility bills, and office equipment… can any of that be written off? Again, if you work as a 1099 independent contractor, you can deduct those expenses, but if you work as a W-2 employee, the answer is no. If you are an employee and you are required to work from your home office, the best option for you is to seek reimbursement from your employer.

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