Home Office Deductions: Only Self-Employed Qualify For Now

COVID-19 has contributed to many significant changes throughout the world. One major change is that more taxpayers are working from home now than ever before. Who is eligible to receive the tax benefits for home office deductions? This article will explain home office deductions and who can claim the deduction for their 2020 taxes.

There are two basic requirements for a taxpayer’s home to qualify as a deduction.

1.    Exclusive use of a defined portion of the home for conducting business on a regular basis.

2.    The home must be the principal place of business. Or, administrative and management responsibilities are conducted in the home because there is no other location where these duties are conducted.

Following ARE ELIGIBLE for the Home Office Deduction:

• Businesses or self-employed

• Homeowners and renters

• A house, apartment, condominium, mobile home or boat

• Structures on the property, like an unattached garage, studio or barn

• Office furniture and furnishings, computers and televisions purchased for work (home office purchases can be expensed in full or you may choose to depreciate over time)

There is a special rule that allows space that is regularly used for inventory or product sample storage to be included in the Home Office Deduction if it is the sole fixed location of the business. This applies to a retail or wholesale product sales business, and the space does not have to be exclusive but it does have to be used regularly.

Another special rule of eligibility for the Home Office Deduction is a home that is regularly used for day care services. The day care services must be for children, adults over age 65, or people with physical or mental disabilities. The space does not have to be exclusive for the day care, but it does have to be used regularly.

Following are NOT ELIGIBLE for the Home Office Deduction:

• Employees

• Property used exclusively as a hotel, motel or inn

• If the portion of the home, desk, computer, etc. are also used by other family members for other purposes

Expenses can be deducted if they are related to the home office space. Deductible expenses can include any or all of the following:

• Mortgage interest

• Insurance

• Utilities

• Repairs

• Maintenance

• Depreciation

• Rent

• Security monitoring

If you qualify, there are two options for calculating your Home Office Deduction on Form 8829:

1.    Simple Method

• $5 per square foot for business use of the home

• Advantage: you don’t need to keep proof of actual home office expenses

• Disadvantage: Maximum is 300 square feet or $1,500

2.    Regular Method

• Deductions are based on the percentage of the home dedicated to business use. (For example, if your home is 2,000 square feet and your workspace is 100 square feet, you are using 5% of the home and can therefore deduct 5% of expenses.)

• Direct expenses are deducted in full

If Congress grants additional COVID-19-related tax relief, it could come in the form of changes to Home Office Deductions. That has not happened yet, but we can continue to hope!

If you are self-employed, you want to make sure you are taking advantage of the Home Office Deductions. You can save thousands of dollars each year and receive tax savings as well! It is recommended that you take photos of your office to keep with your tax records as helpful documentation for proving the regular and exclusive business use of your office space.

I am happy to help you with any questions about Home Office Deductions. My role is to keep more of your hard-earned money in your pocket! Contact me to discuss!