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What to know about the home office deduction if you’re working from home

Posted on September 10, 2020

More of us are working from home than ever before. If you are a part of this relatively new (and burgeoning) group, Teipen CPA Group wants to be sure you know that you may be able to take a home office deduction on your 2020 tax returns.

This deduction allows eligible taxpayers to deduct certain home expenses their tax return.

Here’s what to know about the deduction and how to qualify:

  • The home office deduction is only available for those that use part of their home in connection with a trade or business. It is not approved for those working from home for someone else.
  • IRS Form 8829 (available on IRS.gov) is available to both homeowners and renters, and is the form to complete your home office deduction.
  • For purposes of this deduction, home includes:
    • A house, apartment, condominium, mobile home, boat, or similar property.
    • It could also include structures on the property such as an unattached garage, studio, barn or greenhouse.
  • There are two basic requirements for the taxpayer’s home to qualify as a deduction. First, there must be exclusive use of a portion of the home for conducting business on a regular basis. Even then, the deductible amount of these types of expenses may be limited.
  • Secondly, the home must be the taxpayer’s principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties.
  • The deductible expenses may include mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent.

Calculating what you can claim:

  • Taxpayers who qualify may choose one of two methods to calculate their home office expense deduction:
    • The simplified option uses a rate of $5 per square foot for business use of the home. The maximum size for this option is 300 square feet, rendering the maximum deduction under this method $1,500.
    • Employing the regular method, deductions for a home office are based on the percentage of the home devoted to business use. Taxpayers who use a whole room (or part of a room) for conducting their business need to figure out the percentage of the home used for business activities. Then they can deduct indirect expenses related to that calculation as well as direct expenses, which are deducted in full.

Yes, figuring this all out for the first time gets a little cumbersome. And you may have a few questions. That’s where our experience comes in handy. We have helped clients figure this out a time or two, and we would be happy to help you do the same.