Home Office Tax Deduction

Written by Chase Insogna, CPA | Mar 6, 2023 6:26:32 PM

The home office deduction allows qualified taxpayers to deduct certain home expenses when they file taxes. To claim the home office deduction, you generally must exclusively and regularly use part of your home or a separate structure on your property as your primary place of business.

How to Calculate the Home Office Deduction

Simplified Method

The simplified option involves multiplying an IRS-determined rate (say $5) by the square footage of your home office. To use the simplified option, your home office cannot be larger than 300 square feet, and you won’t be able to deduct depreciation or home-related itemized deductions.

Standard Method

Calculating the home office deduction using the standard method involves completing IRS Form 8829. The first step in computing expenses is to determine the square footage of the workplace and divide that by the total square footage of the home.

Example

Calculate the square footage of your home office. If your home office is a 15-foot by 15-foot room, then its total square footage is 225 square feet (15 feet × 15 feet = 225 square feet).
Find out the square footage of your home. For our example, let’s say your home has a total area of 1,600 square feet.
Now divide the area of your office by the area of your house. For our example, 225 ÷ 1,600 = 0.14 (or 14%). This decimal represents the percentage of your total home expenses that can be allocated toward the home office deduction.

After you determine the percentage of your household expenses that can be written off, you must list all of the expenses that pertain to your entire home, such as mortgage interest, real estate taxes, insurance, utilities, and depreciation for the year under the section titled “Indirect expenses” of Form 8829.

Expenses that are incurred solely for the benefit of the office space are then listed under the “Direct expenses” section of the Form. The indirect expenses are totaled and multiplied by the percentage derived earlier (14% from the example). Then the indirect expenses total is added to the total of the direct expenses.

Frequently Asked Questions about The Home Office Tax Deduction

Can I deduct my internet if I work from home?

Since an Internet connection is technically a necessity if you work at home, you can deduct some or even all of the expenses when it comes time for taxes. You'll enter the deductible expense as part of your home office expenses. Your Internet expenses are only deductible if you use them specifically for work purposes.

Can I write off utilities if I work from home?

You can also deduct a portion of other expenses, including utilities, based on the size of your office versus your home. For example, if your home office is 10% of your entire living space, you can deduct that much from the costs of a mortgage, rent, utilities, and some kinds of insurance.

What are the General Rules?

Three general rules for qualifying your home office as a business expense include:

You must be self-employed.
The workspace for a home office must be used exclusively and regularly for business.
Total deductible expenses can't exceed the income from the business for which the deductions have been taken.

Why can't I claim the home office deduction?

First, it needs to be the primary space where you work; if you rent office space somewhere else, your home office isn't tax-deductible. Second, the space needs to be dedicated to working; if you eat at your kitchen table and you also work at it, technically it doesn't qualify.

Still have more questions about claiming the Home Office Tax Deduction?

If you have questions about claiming the home office deductions on your taxes, give us a call.

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