Must-Know Tips about the Home Office Deduction
If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify, you can claim the deduction whether you rent or own your home. You may use either the simplified method or the regular method to claim your deduction.
“With the way the business environment has been moving, with more virtual offices and people working remotely, this has become an increasingly popular deduction,” said Mark von Rotz, a Tax and Advisory Services Partner at WNDE. “The people we see using it include consultants of various kinds, real estate agents and computer/IT professionals.”
Six tips that people who wish to use the home office deduction should consider, he said, include:
- Regular and Exclusive Use. As a general rule, you must use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:
- Your principal place of business, or
- A place where you meet clients or customers in the normal course of business, or
- A separate structure not attached to your home. Examples could include a garage or a studio.
- Simplified Option. If you use the simplified option, multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the rules for claiming a home office deduction.
- Regular Method. This method includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.
- Deduction Limit. If your gross income from the business use of your home is less than your expenses, the deduction for some expenses may be limited.
- Self-Employed. If you are self-employed and choose the regular method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.
- Employees. You must meet additional rules to claim the deduction if you are an employee. For example, your business use must also be for the convenience of your employer. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.
The home office deduction is no longer a hot button item with the IRS as it once was, said von Rotz, but regardless, “maintaining accurate records is crucial.” Such records include time sheets, calendars of one’s daily routine and a log of business miles. He continued, “With technology, maintaining these records can be easier than it once was.”
For more on this topic, see Publication 587, Business Use of Your Home. You can view, download and print IRS tax forms and publications on IRS.gov/forms anytime.
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Additional IRS Resources:
IRS YouTube Videos:
- Home Office Deduction for Daycare Providers (Simplified Method) – English
- Home Office Deduction for Schedule C Filers (Simplified Method) – English
- Home Office Deduction for Schedule F, Employee, Partnership Filers (Simplified Method) – English