Tax Tips for the Home Office

Working from home can potentially offer some attractive tax advantages. If you qualify for the home office deduction, you can deduct all direct expenses and part of your indirect expenses related to working from home. Keep in mind, however, that qualifying for such deductions became more difficult under the Tax Cuts and Jobs Act of 2017 (TCJA).

If you previously claimed a home office as a miscellaneous deduction on your individual income tax return, the TCJA eliminated that deduction for tax years 2018-2025. You must now file a Schedule C on Form 1040 to be eligible for the home office deduction.

What space can qualify?

Direct expenses are costs that apply only to your home office. The cost of painting your home office is an example of a direct expense. Indirect expenses are costs that benefit your entire home, such as rent, deductible mortgage interest, property taxes, and homeowners insurance. You can only deduct the business portion of your indirect expenses.

Your home office could be a room in your home, a part of a room in your home, or a separate building next to your home that you use for business. To qualify for the deduction, that part of your home must be one of the following:

Your principal place of business. This requires you to show that you use part of your home exclusively and regularly as the principal place of business for your trade or business.

A place where you meet customers, customers or patients. Your home office may qualify if you use it exclusively and regularly to meet with clients or patients in the normal course of your trade or business.

A separate, untethered structure used in connection with your trade or business. A shed or detached garage may qualify for the home office deduction if it is a place you use regularly and exclusively in connection with your trade or business.

A place where you store inventory or product samples. You must use the space on a regular (but not necessarily exclusive) basis for the storage of inventory or samples of products used in your retail or wholesale trade or business.

Note: If you set aside a room in your home as your home office and also use it as a guest bedroom or living room, then you will not meet the “exclusive use” test.

simplified option

If you prefer not to keep track of your expenses, there is a simplified method that allows qualified taxpayers to deduct $5 for each square foot of office space, up to a maximum of 300 square feet.

The great aspect of this is that you don’t have to consider home office depreciation and it can change from year to year unlike other deductions.

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