How To Deduct Your Home Office On Your Taxes (2024)

At the start of the pandemic, the number of people working from home increased significantly—but not all of them will qualify for the home office deduction.

If you are self-employed or a partner, which is an owner in a partnership and primarily work from home, you may be able to take a deduction for your home office expenses. However, if you work for an employer—the majority of the increase in people working from home —you unfortunately will not be able to take the deduction.

Here is what you need to know about deducting your home office expenses.

What is the Home Office Deduction and Who Qualifies?

The home office deduction is a tax deduction available to you if you are a business owner and use part of your home for your business. Your home can be a house, apartment, condo, or similar property. It can also include an unattached garage, studio, barn, or greenhouse. The deduction is available for both renters and homeowners.

To qualify for the deduction you must be a partner or self-employed, such as a rideshare driver. However, if you work for an employer you are no longer able to take the deduction—the Tax Cuts and Jobs Act 2017, passed during the Trump administration, eliminated the deduction for the years 2018 through 2025. This includes anyone who receives a W-2 or a regular paycheck from their employer. You may also qualify if you have a side gig and also work for an employer.

What are the Requirements to Take the Home Office Deduction on Your Tax Return?

The IRS requires two basic conditions to claim the deduction.

You must use a portion of your home exclusively for conducting your business regularly. While the IRS does not require you to keep a specific method to prove your home office, you should keep documents to verify your home office deduction. This may include (but is not limited to) canceled checks, receipts and other records to prove your home office and any expenses paid, such as mortgage interest, cable, utilities and other qualified expenses.

Also, your home must be your principal place of business. It would qualify as your principal place of business even if you only used your home office exclusively and regularly for administrative tasks only and do not have another location to perform these duties (there are some other exceptions).

For example, if you are a rideshare driver but do not have a work office and use your home office for ordering supplies, creating reports and other administrative tasks, you would qualify for the home office deduction.

Can You Deduct Business Use of Your Home Expenses?

Source: IRS

Your home office doesn’t have to be a separate room but the IRS requires that it’s a distinct area that’s used as your home office only. For example, if you are an accountant and use your den to prepare clients’ financial statements and your kids also use the room as recreation, you cannot claim the home office deduction.

There are some instances where you do not need to meet the exclusive use requirement. For example, if you use part of your home to store inventory or product samples or use it for a daycare facility, you do not need to meet this requirement.

How to Claim the Home Office Deduction

There are two options available to claim the home office deduction—the simplified option and the regular method.

The simplified option is a quick and easy way to determine your home office deduction. To determine your deduction, simply multiply your office’s total square footage by $5. The maximum amount you can claim using the simplified method is $1,500 (300 square feet), which can reduce your taxable income.

The regular method option allows you to claim a tax deduction based on the percentage of your home office square footage and home-related expenses. With this option, you can claim home-related expenses such as rent, mortgage interest, utilities, insurance, repairs, and other expenses.

To determine the regular method option, first, divide your home office square footage by your home’s total square footage to obtain your deductible percentage. Next, multiply your percentage by the sum of your home’s total allowable expenses to get your home office deduction.

For example, if your home office was 200 square feet and your home was 1,000 square feet, you would deduct 20% of your allowable expenses (200/1,000 = 0.20). Unlike the simple method of deduction, there is no maximum to how much you can claim under the regular method.

What’s the Difference Between the Simple or Regular Method For Deducting Your Home Office?

Whether you choose the simple or regular method for deducting your home office will determine how you report it on your tax return. Generally, you should select the deduction that provides the highest deduction for your business. If you use an online tax software provider, calculate your deduction both ways to determine which method works best. Otherwise, you may want to speak with a tax professional to determine which method would work best for your tax situation.

If you choose the simplified method, you would complete the Simplified Method Worksheet. The worksheet provides guidance to help you figure your allowable deduction to claim on the tax return.

If you decide to use the regular deduction method, you would complete Form 8829, Expenses Business Use of Your Home. This process is a little more involved.

Let’s say you are self-employed and had a net income of $9,000 from your business, which is your gross income minus expenses. During 2020, you used your home office, which was 200 square feet and your overall home’s square footage was 1,000. If you incurred the following home expenses of $8,500 for the year, you would be able to deduct 20% of your actual expenses using the actual method and claim an expense deduction of $1,700.

• Mortgage interest: $3,000
• Real estate taxes: $1,500
• Insurance: $2,500
• Utilities: $1,500

Where you enter your regular home office deduction expenses on your Form 8829. This image is for informational purposes only.

Common Mistakes People Make When Claiming the Home Deduction

You want to make certain you do not make common mistakes when claiming the credit, such as claiming the credit if you are an employee and deducting an area in your home that is not used solely for the purpose of your business. If you do make a mistake, you will need to amend your tax return with the IRS.

Susan Allen, a certified public accountant, and senior manager for tax practice and ethics at the American Institute of CPAs (AICPA) says while employees are not able to claim the deduction, they should consider asking their employer for reimbursem*nt for expenses paid for related to their home office. “If you truly spend your own money on things like notepads or a second monitor, you should ask your employer to reimburse you for those expenses,” Allen says.

Allen adds this allows the employer the ability to deduct the reimbursem*nt as business expenses, which may further incentivize them to recompense you.

For those who may qualify for the home office deduction, “there are boxes you must check to qualify…such as regularly and exclusively using the home office to conduct business and the office must be your principal place of business. You can’t just set up a desk in your kid’s playroom and take the deduction,” Allen says.

Allen says taxpayers may want to use the simplified option, which is an easier option. But like all tax matters, Allen says you should consider consulting with a CPA for all of your tax and financial needs.