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Who qualifies for the home-office tax deduction in the era of remote work?

Posted by Kanika Sinha

October 6, 2021    |     4-minute read (674 words)

Like millions of remote workers in the U.S., if you’re working from home full-time to reduce your exposure to the delta variant, you probably can’t write off home office costs on your taxes. 

The IRS’ “unreimbursed employee expense deduction” is now off the table for most employees forced to work from their homes. So, why is this the case?

Enacted before the pandemic, the Tax Cuts and Jobs Act of 2018 put the deduction and other “miscellaneous itemized deductions” on ice for those who work for an employer. Employees who work out of their abode full-time no longer qualify for the home-office tax deduction. This includes anyone who receives a regular paycheck or W-2 from their employer.

Nevertheless, there is a silver lining for entrepreneurs and independent contractors who work remotely.

What is the home-office tax deduction?

This tax deduction allows eligible individuals to write off expenses directly related to maintaining their home office. This is defined as any part of your home that you use exclusively and regularly for your business. 

Homeowners and renters who meet the IRS’ conditions are eligible for the deduction, and it applies to all types of homes, such as condos, apartments and mobile homes. It also includes structures on the property, like an unattached garage, barn, studio or greenhouse

Who’s eligible

After the Tax Cuts and Jobs Act suspended the business use of the home-office deduction from 2018 through 2025 for employees, it became available exclusively for self-employed taxpayers, independent contractors and people working in the gig economy.

People who have a side gig but also work for an employer may also qualify for the deduction.

Requirements

The IRS requires eligible taxpayers to meet two conditions to claim the home-office deduction.
  • Regular and exclusive use – You must regularly and exclusively use your home office to conduct your work. That is, you must have a space designated specifically for the purpose and it cannot be combined with personal use space. For instance, if you occasionally set up your laptop in your living room, you can’t claim it as your workspace.
  • Principal place of your business – Your home office must be your main place of business. That means you use the space regularly and substantially to do your business work, be it meeting clients or performing administrative work. 
How to claim the home-office deduction

If you qualify as self-employed, a gig worker or independent contractor and meet the two conditions for maintaining a home office, understand that there are two ways to compute your home-office deduction:
  1. The simplified option allows a standard deduction of $5 per square foot of home space used for work, up to a maximum of 300 square feet or $1,500. However, it does not allow any deduction for the depreciation of your home office.
  2. The regular method permits you to take a deduction based on the percentage of your home devoted to your business activities, necessitating recordkeeping of expenses. Unlike the simplified option, in addition to taking the deduction for depreciation, you can allocate and deduct the cost of your mortgage, taxes and any other expenses attributable to your home-office under the regular method.
For example: If your home-office is 200 square feet and your home is 1,000 square feet, you would deduct $1,000 under the simplified option, and 20% of allowable expenses under the regular method. 

Note: You may choose either method for a taxable year. But once you have chosen a method, you cannot later in the year switch to the other method.

Recap

If you’re still planning on recouping some costs for being cooped up in your home until the pandemic subsides, keep these three pointers in mind.
  • Only self-employed workers and independent contractors are eligible for the home-office deduction. Employees can’t write off any of the home-office expenses at least till 2025.
  • Be sure to have a dedicated home office. Designate an area of your home just for business purposes.
  • Keep immaculate records. Track your home-office expenses and save all your receipts.

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