The Ins and Outs of the Home Office Deduction
The pandemic changed the landscape of work for a lot of people, including the numerous business owners who began running their businesses from their homes. Many are still working from their home offices, whether full-time or on a hybrid basis. If you're self-employed and run your business from home, or perform certain functions there, you might be able to claim deductions for home office expenses against your business income.
How to Qualify
In general, self-employed taxpayers qualify for home office deductions if part of their home is used “ regularly and exclusively” as the principal place of business.
If your home isn't your principal place of business, you may still be able to deduct home office expenses if:
Keep in mind the requirement that the space be used exclusively for business. For example, if your home office is also a guest bedroom, you can't deduct the entire space as a home office expense. But if you use the desk area of the room exclusively for business, you can deduct that portion of the room, as long as you otherwise qualify.
Expenses You Can Deduct
Many eligible taxpayers deduct actual expenses when they claim home office deductions. Deductible home office expenses may include:
But keeping track of actual expenses can take time, and it requires organized recordkeeping.
The Simpler Method
Fortunately, there's a simplified method: You can deduct $5 for each square foot of home office space, up to $1,500.The cap can make the simplified method less valuable for larger home office spaces. Even for small spaces, taxpayers may qualify for bigger deductions using the actual expense method. So tracking your actual expenses can be worth it.
When claiming home office deductions, you're not stuck with a particular method. For instance, you might have chosen the actual expense method when you filed your 2022 return, but then use the simplified method when you file your 2023 return next year, and the following year switch back to the actual expense method. The choice is yours.
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More Considerations
The amount of your deductions is subject to limitations based on the income attributable to your use of the office. Other rules and limitations may apply. But eligible home office expenses that can't be deducted because of these limitations can be carried forward and may be able to be deducted in later years.
Also be aware that, if you sell a home on which you claimed home office deductions, there may be tax implications. Contact us for more information.
A Valuable Deduction
You might be wondering why only business owners and the self-employed have been addressed here. Unfortunately, the Tax Cuts and Jobs Act suspended home office deductions from 2018 through 2025 for employees, even if you're currently working from home because your employer doesn't provide office space.
But the home office deduction can be valuable to those who're eligible for it. We can help you determine if you're eligible and the best method for claiming the deduction in your situation.
For help charting the best tax course for you, don't hesitate to contact us at 406-480-6622 or at [email protected] or book an appointment now.
Cheers!
Jake Linville, CPA, CGMA, MBA
406-480-6622 (text, phone call and WhatsApp)
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.