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 (currently $5) by the square footage of your home office. Your home office cannot be larger than 300 square feet, and you won’t be able to deduct depreciation or home-related itemized deductions with this method.
Standard Method
Calculating the home office deduction using the standard method involves completing IRS Form 8829. First, determine the square footage of your workspace and divide that by the total square footage of your home.
Example
- 👉 Calculate the square footage of your home office. If your home office is a 15-foot by 15-foot room, its total square footage is 225 square feet (15 feet × 15 feet = 225 square feet).
- 👉 Find out the total square footage of your home. Let’s say your home has a total area of 1,600 square feet.
- 👉 Divide the area of your office by the area of your house. For our example, 225 ÷ 1,600 = 0.14 (or 14%). This percentage represents the portion of your total home expenses that can be allocated toward the home office deduction.
After determining the percentage of your household expenses that can be written off, 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 incurred solely for the benefit of the office space are then listed under the “Direct expenses” section. 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 essential for working from home, you can deduct some or even all of the expenses when filing taxes. 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 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:
- 1️⃣ You must be self-employed.
- 2️⃣ The workspace for a home office must be used exclusively and regularly for business.
- 3️⃣ 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, it doesn’t qualify.
Still have more questions about claiming the Home Office Tax Deduction?
If you have questions about claiming the home office deduction on your taxes, give us a call. We’re here to help you navigate the complexities of home office tax deductions and ensure you maximize your benefits. Call us today and let’s simplify your tax season together!