You’ll need to file IRS Form 8829 with your tax return to claim the home office tax deduction using the regular method. If you’re using the simplified method, save documentation showing the square footage of your home office and total home space in case any questions arise later. For the actual expenses method, you’ll need detailed records of home-related expenses. The home office tax deduction can offer valuable savings for eligible self-employed individuals and single-member LLCs who use part of their home regularly and exclusively for business. While the rules are specific and documentation is key, it’s worth exploring if you qualify. For complex situations involving depreciation or significant deductions, consulting a tax professional can help ensure you’re maximizing your benefits while staying compliant.

Regular method – You compute the business use of home deduction by dividing expenses of operating the home between personal and business use. You may deduct direct business expenses in full, and may allocate the indirect total expenses of the home to the percentage of the home floor space used for business. Self-employed taxpayers filing Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) first compute this deduction on Form 8829, Expenses for Business Use of Your Home. If the exclusive use requirement applies, you can’t deduct business expenses for any part of your home that you use both for personal and business purposes. For example, if you’re an attorney and use the den of your home to write legal briefs and for personal purposes, you may not deduct any business use of your home expenses. To be eligible for the home office tax deduction, you must meet certain requirements.

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The more substantial the activities, in terms of time and effort invested and income generated, the more likely you are to pass the test. You may have heard that taking the home office deduction sends a red flag to the IRS and ups your chances of being audited. Although there may have been some merit to this advice in the past, changes in the tax rules in the late 1990s made it easier for people who work out of their homes to qualify for these write-offs.

Other home office deduction rules and considerations

First, calculate the square footage of the space in your home that is used for business purposes. Then, divide that by the total square footage of the home to determine the eligible percentage of space. The rules for home office tax deductions for W-2 employees changed significantly in 2017 with the Tax Cuts and Jobs Act.

  • Find your allowable tax deduction by multiplying the percentage of your home used for business by the total amount of property tax paid over the tax year.
  • Good recordkeeping will also help you make accurate calculations to maximize your tax benefits.
  • The biggest roadblock to qualifying for these deductions is that you must use a portion of your home exclusively and regularly for your business.
  • This deduction lowers your taxable income, which means you pay less tax.

Exclusive rules exceptions

  • Publication 587 has detailed information on rules for the business use of your home, including how to determine whether your home office qualifies as your principal place of business.
  • The IRS provides a worksheet to calculate your deduction using the simplified method.
  • Self-employed taxpayers filing Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) first compute this deduction on Form 8829, Expenses for Business Use of Your Home.

This was $5 per square foot up to a maximum of $1,500 in 2024, but it is subject to change, so always check the latest IRS guidelines. The home office deduction can be a big benefit when it comes to self-employment tax. If you’re self-employed and work almost exclusively out of your home office, that space qualifies as your principal place of business. That being said, the simplified option also has limitations and may not always result in the highest deduction compared to the actual expense method. Depending home office deductions on the square footage of your home office, a flat-rate deduction may not accurately reflect the actual expenses you paid.

Eligible taxpayers don’t have to do complex calculations

The office can also be a section of a room, and you can show that personal activities are excluded from the business section. After completing Form 8829, you’ll transfer all your allowable expenses to Schedule C (Form 1040). If you file with us at TaxAct®, we make this process easy by asking you detailed interview questions and using your answers to fill out the applicable tax forms. The size of your home also plays a significant role in determining your deduction amount, so make sure you know the square footage of your home office to make your calculations.

Actual expenses method based on business use percentage

Many business owners skip this deduction because they think they don’t qualify or fear an IRS audit. One final bonus of having a home office as your principal place of business is that travel between home and work locations is considered a deductible business expense. So, when you are sitting in traffic wishing you were working from home, take heart that you can deduct the miles to and from the office from your taxes.

However, whether you can claim either of these deductions depends on your employment status. With more and more people working from home, we are often asked how the home office deduction works and what qualifies for it. For definition purposes, the home office deduction is a tax benefit that allows a business owner to deduct a portion of their household expenses that can be reasonably allocated to a dedicated office space.

Beginning with 2013 tax returns, the IRS began offering a simplified option for claiming the deduction. This new method uses a prescribed rate multiplied by the allowable square footage used in the home. Making money from your efforts is a prerequisite, but for purposes of this tax break, profit alone isn’t necessarily enough. If you use your den solely to take care of your personal investment portfolio, for example, you can’t claim home office deductions because your activities as an investor don’t qualify as a business. For instance, you may qualify if you work in a dedicated area of your home, like a spare bedroom or unattached garage. However, spaces used for both personal and business purposes don’t meet the “exclusive use” requirement unless they fall under certain exceptions, such as inventory storage or daycare services.

Another advantage is that the simplified method reduces the risk of errors or discrepancies when calculating the home office deduction. A standardized rate means there is less room for mistakes when determining the deductible portion of your indirect expenses. The space doesn’t have to be marked off by a permanent partition, but you can’t claim the home office deduction if you use the space for business and personal purposes. However, the exclusive use requirement might not apply if you use part of your home for the storage of inventory or product samples, or as a daycare facility.

Whether you’re self-employed or a partner, you may be able to deduct certain expenses for the part of your home that you use for business. You can determine the value of your home office deduction using one of two methods. 🎙 ABOUT THE PODCASTThe Small Business Tax Savings Podcast is your go-to resource for cutting-edge tax strategies to help entrepreneurs legally slash their tax bills. Hosted by Mike Jesowshek, CPA, this show breaks down complex tax topics into clear, no-fluff insights so you can keep more of your hard-earned money. The desk you’re sitting at could save you up to $1,500 a year in taxes.

In the above example, if your monthly mortgage is $3,000 (or $36,000 per year), you’d be able to deduct 10% of that total, or $3,600. Use these same calculations on other eligible expenses to determine the total amount you can deduct. With remote and hybrid work becoming more commonplace, many workers may assume they can claim a home office tax deduction. However, this tax break comes with some finer points to be aware of and primarily benefits self-employed individuals, not W-2 employees. Let a local tax expert matched to your unique situation get your taxes done 100% right with TurboTax Live Full Service. Your expert will uncover industry-specific deductions for more tax breaks and file your taxes for you.

It’s important to note that using the simplified method means you cannot depreciate the business-use portion of your home. This depreciation calculator will help you calculate how much you can write off. Casualty losses aren’t related to wear and tear of your property or graduation deterioration. You may, however, have to report a gain for the business part of your property.

If you’re unsure if you’re eligible for the home office tax deduction, or if you need help calculating your deduction, consider consulting with a tax professional. You might be able to claim a home office deduction and save money on your taxes. People who in addition to a W-2 job have income from freelancing or a side hustle, or run their own business, may be able to take the home office deduction. There are tight conditions on this tax break—for instance, the space where you conduct self-employed business must be separate from where you work at home as an employee.

It can cover expenses for the business use of your home, including mortgage interest, rent, insurance, utilities, repairs, and depreciation. The home office deduction allows qualified taxpayers to deduct certain home expenses when they file taxes. The regular method requires extensive recordkeeping, but can potentially net you a larger deduction each year depending on the size of your space and how much you spend on it.