The Internal Revenue Service wants individuals to consider taking the home office deduction if they qualify. The benefit may allow taxpayers working from home to deduct certain expenses on their tax return.
The home office deduction is available to qualifying self-employed taxpayers and independent contractors. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the home office deduction between 2018-2025, even if they are currently working from home.
There are two basic requirements to qualify for the deduction: 1) The taxpayer needs to use a portion of the home exclusively for conducting business on a regular basis, and 2) the home must be the taxpayer’s principal place of business.
To claim the deduction, a taxpayer must use part of their home for one of the following:
● Exclusively and regularly as a principal place of business for a trade or business
● Exclusively and regularly as a place where patients, clients, or customers are met in the normal course of a trade or business
● As a separate structure that's not attached to a home that is used exclusively and regularly in connection with a trade or business
● On a regular basis for storage of inventory or product samples used in a trade or business of selling products at retail or wholesale
● For rental use
● As a daycare facility
The term "home" for purposes of this deduction:
● Includes a house, apartment, condominium, mobile home, boat, or similar property
● Includes structures on the property, like an unattached garage, studio, barn, or greenhouse
● Doesn’t include any part of the taxpayer’s property used exclusively as a hotel, motel, inn, or similar business
Deductible expenses for business use of home normally include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs. In general, a taxpayer may not deduct expenses for the parts of their home not used for business; for example, expenses for lawn care or painting a room not used for business.
A taxpayer can use either the regular or simplified method to figure the home office deduction.
● Regular method: divide expenses of operating the home between personal and business use.
● Simplified Option: use a prescribed rate of $5 per square foot of the portion of the home used for business (up to a maximum of 300 square feet).