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.
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 home 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.