This year, did you work from home? When you can get a tax deduction home office
This year, after your “great resignation,” did you start your own business or become your own boss?
At tax time, you might be able to write off the cost of your home office.
“Now that you’re not a 9-to-5 worker, you can take advantage of the home-office deduction,” said Sheneya Wilson, CPA and founder of Fola Financial in New York. This is one of the biggest deductions that people who work from home can
Here’s who can get the tax deduction home office.
Depending on how big your office is compared to your house, you can deduct some utilities.
You can deduct mortgage, rent, utilities, and some insurance if your home office consumes 10% of your living space. Depending on how big your office is compared to your house, you can deduct some utilities.
The tax reduction usually applies to self-employed, gig, and independent contractors. . It is not for people who work for a company and get a W-2 at tax time.
In a September 2020 reminder about the home-office deduction, the IRS said, “Employees who only get a paycheck or W-2 from an employer are not eligible for the deduction, even if they work from home.”
There may be some confusion, since employees used to be able to take the home-office deduction. The Tax Cuts and Jobs Act of 2017 made it illegal for these workers to take the deduction from 2018 through 2025.
In 2021, taxpayers can only get the home-office deduction if they use a part of their home or a separate building on their property as their main place of business. This includes a place where you meet clients or customers, run your business, store inventory, rent out, or use as a daycare center.
The IRS says that you don’t have to own a house to get the deduction. Mobile homes, boats, and other similar properties are also eligible.
You can also take only a portion of the deduction. Wilson argues that if you quit your 9-to-5 work in 2021 to establish a business and use your house as your main office, you may be eligible to claim the deduction for part of the year.
How to figure out the deduction
There are two ways eligible taxpayers can figure out how much they can deduct for a home office.
In the simplified version, you can take $5 per square foot of your home office up to 300 square feet, which caps the method at $1,500.
This home office must only be used for your business. It can’t be a guest room with a desk, and you must prove you require an office for work.
If audited by the IRS, you must prove this deduction
The regular deduction is a little more complicated because you have to keep track of all your real expenses. You can write off up to 100% of some costs for your home office, like the cost of repairs.
Depending on how big your office is compared to your house, you can deduct some utilities.
If your home office occupies 10% of your living area, you can deduct it off your mortgage, rent, utilities, and some insurance. . The IRS Form 8829 will help you figure out which of your home business expenses are tax deductible.
Markowitz said that because of how this method works, people with bigger homes might not get as much. You can change your method from year to year, and you should try to figure out both to see which will give you a bigger deduction.
If you aren’t eligible,
Even while employees may feel like they’re missing out, most home-office deduction takers don’t save much.
Markowitz said that for most taxpayers, the $1,500 maximum for the simplified deduction is about 35 cents on the dollar. He said that would be about a $525 write-off.
Taking the deduction could also make selling your property harder.
Depreciating your home office could trigger a tax event when you sell it.
Still, that doesn’t mean you shouldn’t take the home-office deduction if you’re eligible.
Markowitz said, “If you’re eligible for it and the government will pay for it, you should take it.”
