What To Know Before You Deduct Your Home Office

By: James Flippin · March 17, 2023 · Reading Time: 3 minutes

Home Office Deduction

The pandemic encouraged a significant number of Americans to work from home, either as employees or independent contractors. With Tax Day approaching, some of these workers may be looking to take advantage of a tax deduction for their home office. If you are one of them, it’s important to know the ins and outs of the deduction before completing your tax return.

As it turns out, the “home” in “home office” is quite flexible, and homeowners are not the only ones eligible. Other types of housing like apartments, mobile homes, and even boats may qualify for the write-off.

That said, there are other requirements to be aware of. Not all types of remote workers are eligible. Plus, the write-off is a common audit trigger.

Eligibility Requirements

Home office tax deductions are typically only available to independent contractors or the self-employed. W-2 employees are not eligible for the deduction, even if they work from home.

With remote work now normalized at plenty of companies, this may be disappointing to many. But tax experts say the typical savings provided from the write-off isn’t substantial enough to lose sleep over.

What’s more, if you are a homeowner, there can be a downside to taking the home office deduction when it comes time to sell your house. Determining the value of your home office can complicate tax calculations associated with the sale.

What to Know

If you are eligible for the deduction and interested in taking it, here are some key particulars to keep in mind.

The IRS requires the home office be used “exclusively and regularly” as the primary place of business. If you were to be audited, you would need to prove this to the IRS.

Also, self-employed workers eligible for the deduction may calculate the write-off using one of two methodologies offered by the IRS:

•   The simplified option provides for a maximum $1,500 deduction — $5 per square foot, with a 300 square foot limit.

•   The regular version allows for a higher deduction, but is more complex to calculate. First, determine the portion of your home’s total square footage taken up by the home office. Then, multiply it by relevant home expenses such as mortgage, utilities, and insurance.

To take the write-off, there are many moving pieces to keep in order. And, just like your home office, the key is organization.

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