You might be surprised by the answer.
When Can You Take a Deduction for the Business Use of Your Home?
One of the most misunderstood deductions available to some taxpayers is the deduction for the business use of their homes. I too often hear people casually refer to the availability of this deduction under circumstances that likely do not qualify. While the rules are too complicated and nuanced to cover in full in a short blog post, here are some things to keep in mind.
One misunderstood deduction available to some taxpayers is the ability to deduct the use of their home for business purposes. People often casually claim they qualify for this deduction and then list circumstances that fall outside of the statute’s express use.
IRC § 280A is a prohibitive statute that begins by stating:
Except as otherwise provided in this section, in the case of a taxpayer who is an individual or an S corporation, no deduction otherwise allowable under this chapter shall be allowed with respect to the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence.
In other words, the general rule is that taxpayers are generally not entitled to a deduction for the business use of their home, subject to several narrowly carved-out exceptions provided in the statute.
For taxpayers who are employees, the Tax Cuts and Jobs Act of 2017 suspended the deduction from 2018 through 2025, which means that even for those who work from home, most people will not qualify for this deduction even if they have had to convert part of their home to a home office due to the pandemic.
Many self-employed taxpayers do qualify for the deduction, but calculating that deduction can be tricky. First, a taxpayer must determine if they qualify for one of the exceptions. To qualify, you must use a portion of your home exclusively and regularly for business purposes. The area can be a room or space you use as an office, but it must be used solely for work and not for any non-business purposes, such as watching TV or using it for personal storage.
If your use does qualify as a business deduction, there are two methods by which you can calculate the home office deduction.
The first is by calculating the actual expenses based on the percentage of the home that qualifies for business use and related expenses thereto. This method requires you to calculate the actual expenses, including electricity, internet, phone bills, office supplies, and equipment. You can only claim the percentage of these expenses directly related to your home office.
The second method allows the taxpayers to use the simplified method, detailed in Rev. Proc. 2013-13, which provides a safe harbor and reduces the record-keeping burden on a taxpayer claiming the deduction. This method allows you to deduct a flat rate of $5 per square foot of your home used as a home office, up to a maximum of 300 square feet or $1,500.
As more people work from home, understanding the home office tax deduction is becoming increasingly important. If you work from home, you may be able to deduct certain expenses related to your home office on your tax return but don’t assume that you can deduct your home workspace simply because you have been working from home.
Consult with a tax professional if you have questions concerning your deductible work expenses. If the IRS is questioning your claims for deducting the use of your home, contact us for a free consultation to see how we can help.
Most people will not qualify for a deduction for the business use of their homes. IRC § 280A is a prohibitive statute that begins by stating:
Except as otherwise provided in this section, in the case of a taxpayer who is an individual or an S corporation, no deduction otherwise allowable under this chapter shall be allowed with respect to the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence.
In other words, the general rule is that taxpayers are generally not entitled to a deduction for the business use of their home, subject to several narrowly carved-out exceptions provided in the statute. For taxpayers who are employees, the Tax Cuts and Jobs Act of 2017 suspended the deduction from 2018 through 2025, which is unfortunate considering how many employees had to convert part of their homes to a home office due to the pandemic.
Many self-employed taxpayers do still qualify for the deduction, but calculating that deduction can also be tricky. First, a taxpayer must determine if they qualify for one of the exceptions. If they do qualify, there are two methods by which the deduction may be calculated. The first is by calculating the actual expenses based on the percentage of the home that qualifies for business use and related expenses thereto. Taxpayers may also use the simplified method detailed in Rev. Proc. 2013-13, which provides a safe harbor and reduces the record-keeping burden on a taxpayer claiming the deduction.
If the IRS is questioning your deduction claimed for business use of your home, contact us for a free consultation to see how we can help.