Who can claim a home office deduction?
As a result of the Tax Cuts and Jobs Act of 2017 (2017 tax reform), an employee who works from home, cannot deduct home office expenses for the tax years 2018 through 2025. However, if you are self-employed, you can continue to deduct qualifying home office expenses by reporting the deduction on federal form 8829, Expenses for Business Use of Your Home, which is filed along with your Schedule C, Profit or Loss From Your Business, on your form 1040.
How much can I deduct for a home office?
You can calculate your home office deduction using either the simplified method or the regular method. With both methods, the portion of your home must be exclusively used for your business and cannot be used for other purposes (like a guest room or a gym). The total deduction you take for the business use of your home and other business expenses cannot exceed the gross or total amount you made for the business use of your home.
Should I use the simplified method or the regular method to calculate my deduction?
The simplified method is easier to calculate and is typically ideal for small business owners. Here are some of its highlights:
- A standard $5 per square foot is used to determine the deduction
- Allowable square footage of home use for business cannot exceed 300 square feet
- No depreciation deduction
- No recapture of depreciation upon sale of home
- No carryover of amounts in excess of gross income limitation
- No loss carryover from use of regular method in prior year
The regular method is a more complicated but may give you a bigger deduction. Here are some of the benefits of choosing the more detailed option:
- Percentage of home used for business
- Actual expenses are determined and records must be maintained
- Home-related itemized deductions are divided between your personal itemized deductions and business deductions.
- Depreciation and recapture of depreciation upon sale of home is allowable
- Amount in excess of gross income limitation may be carried over
- Loss can be carried over from use of regular method in the prior year up to the maximum deduction you can claim for this year
If you are unsure which method works best for you, check out this IRS website for more details on expenses for business use of your home.