What taxpayers must know about the Home Office Deduction

The Home Office Deduction allows certain taxpayers who qualify to deduct certain home expenses on their tax returns. More people than ever are working from home, and they may be wondering if they qualify to take these home-office deductions when they file their income tax returns for 2020 next year.

Here is some especially important information to keep in mind if you are considering taking this deduction:

  • Employees (receiving Forms W-2 from their employer(s)) do not qualify for this deduction
  • This tax benefit which is calculated on Form 8829 is available to renters and homeowners
  • Some expenses that taxpayers can deduct are rent, mortgage interest, insurance, utilities, repairs, and maintenance
  • The criteria that taxpayers must meet to qualify for this deduction are extremely specific, and therefore may be limited
  • The IRS definition of “home” is
    • House, apartment, mobile home, boat used as a dwelling, etc.
    • Structures on the property are included, such as unattached garage or shed
    • “Home” does not include property used as a hotel, motel, or similar type business
  • The home must meet 2 basic requirements to qualify for the deduction:
    • There must be exclusive use of a section of the home for business, like a spare bedroom, or the corner of the living room. That section must be used regularly and exclusively for business.
    • The home must be the taxpayer’s principal place of business. It also qualifies if you use the home for management or administrative supporting purposes that support the function of the business that actually takes place outside the home. For example, you use a spare bedroom for an office to do your bookkeeping for your landscaping business
  • There are 2 methods to calculate the home office deduction
  1. Simplified Method, which has a rate of $5 per square foot of the business use of the home. The maximum square footage for this method is 300 Sq. Ft. The maximum deduction that you can claim using this method is $1,500
  2. The Regular Method use the percentage of the home that you are using for your business. Take the number of square feet that you are using for business and divide it by the total square feet of the home. That percentage is the percentage of all your home expenses that you can deduct for business use

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