If you are like many Americans, the Coronavirus forced you to work from home for some or most of 2020. You may have had to purchase items to make your home more conducive to a work from home environment, including computers, printers, desks, basic office supplies, office chairs or even faster internet. With all of these additions to your home office, you may be wondering, “Can I deduct these expenses or take a home office credit on my 2020 tax return?”
The answer depends on if you are an employee or if you are self-employed.
Home Office Deduction for Employees
The 2017 Tax Cuts and Jobs Act suspended the business use of home deduction from 2018 through 2025 for employees. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home. Additionally, there is no deduction for unreimbursed work expenses.
This means you will not be able to deduct home office expenses or purchases that allow you to work from home, and you do not qualify for the home office deduction.
Home Office Deduction for Self-Employed Individuals
There are two parts of the equation for self-employed individuals: ordinary business expenses and a home office deduction. Ordinary business expenses can be taken on your return and are usually reported on a Schedule C. They include any ordinary and necessary expenses to conduct business.
The home office deduction is available to self-employed taxpayers, independent contractors and those involved with short-term contracts or freelance work.
How to Qualify for the Home Office Deduction
There are two basic requirements to qualify for the home office deduction:
- You must use a portion of the home exclusively for conducting business on a regular basis, and
- The home must be your principal place of business
“Exclusive use” means you must use a specific portion of the home only for business purposes, and for nothing else. A home office does not need to be a separate room or permanently partitioned portion of a room. Any “separately identifiable” area can serve as an office. For instance, a corner of a room with a desk and file cabinet could qualify as a home office.
According to the IRS, to claim the deduction, you must use part of your 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 is 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 IRS, defines the term “home” as:
- A house, apartment, condominium, mobile home, boat or similar property
- A structure on the property, like an unattached garage, studio, barn or greenhouse
- Not including any part of the taxpayer’s property used exclusively as a hotel, motel, inn or similar business
Qualified Expenses
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.
Claiming the Home Office Deduction
You can use either the regular or simplified method to calculate the home office deduction. The IRS describes the regular and simplified methods as:
- Using the regular method, qualifying taxpayers compute the business use of home deduction by dividing expenses of operating the home between personal and business use. Self-employed taxpayers filing IRS Schedule C, Profit or Loss from Business (Sole Proprietorship) first figure this deduction on Form 8829, Expenses for Business Use of Your Home.
- Using the Simplified Option, qualifying taxpayers 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) to figure the business use of home deduction. A taxpayer claims the deduction directly on IRS Schedule C.
Contact an Anders advisor below to discuss the specific nuances of the home office deduction and if you qualify.
