{"id":6081,"date":"2024-10-08T23:38:31","date_gmt":"2024-10-08T23:38:31","guid":{"rendered":"https:\/\/finderica.com\/7-rules-for-taking-a-work-from-home-tax-deduction\/"},"modified":"2024-10-08T23:38:31","modified_gmt":"2024-10-08T23:38:31","slug":"7-rules-for-taking-a-work-from-home-tax-deduction","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=6081","title":{"rendered":"7 Rules for Taking a Work-From-Home Tax Deduction"},"content":{"rendered":"\n
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If you\u2019re one of the millions of people who worked remotely in 2023, you may be wondering whether that means a sweet deduction at tax time. Hold up, though: The IRS has strict rules about taking the home office deduction \u2014 and they changed drastically under the Tax Cuts and Jobs Act, which passed in late 2017.\n<\/p>\n

7 Essential Rules for Claiming a Work-From-Home Tax Deduction<\/h2>\n

Thinking about claiming a home office deduction on your tax return? Follow these tips to avoid raising any eyebrows at the IRS when you file your 2023 tax return, which is due on April 15, 2024.<\/p>\n

1. You can\u2019t claim it if you\u2019re a regular employee, even if your company requires you to work from home.<\/b><\/p>\n

If you\u2019re employed by a company and you work from home, you can\u2019t deduct home office space from your taxes. This applies whether you\u2019re a permanent remote worker or if your office still hasn\u2019t returned to in-person operations because of COVID-19. The rule of thumb is that if you\u2019re a W-2 employee, you\u2019re not eligible for a work-from-home tax deduction.<\/p>\n

This wasn\u2019t always the case, though. The Tax Cuts and Jobs Act suspended the deduction for miscellaneous unreimbursed employee business expenses, which allowed you to claim a home office if you worked from home for the convenience of your employer, provided that you itemized your tax deductions. The law nearly doubled the standard deduction. As a result, many people who once saved money by itemizing now have a lower tax bill when they take the standard deduction.<\/p>\n

2. If you have a regular job but you also have self-employment income, you can qualify.<\/b><\/p>\n

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If you\u2019re self-employed \u2014 whether you own a business or you\u2019re a freelancer, gig worker or independent contractor \u2014 you probably can take the home office deduction, even if you\u2019re also a full-time employee of a company you don\u2019t own. It doesn\u2019t matter if you work from home at that full-time job or work from an office, as long as you meet the other criteria that we\u2019ll discuss shortly.<\/p>\n

You\u2019re allowed to deduct only the gross income you earn from self-employment, though. That means if you earned $1,000 from your side hustle plus a $50,000 salary from your regular job that you do remotely, $1,000 is the most you can deduct.<\/p>\n

3. It needs to be a separate space that you use exclusively for business.<\/b><\/p>\n

The IRS requires that you have a space that you use \u201cexclusively and regularly\u201d for business purposes. If you have an extra bedroom and you use it solely as your office space, you\u2019re allowed to deduct the space \u2014 and that space alone. So if your house is 1,000 square feet and the home office is 200 square feet, you\u2019re allowed to deduct 20% of your home expenses.<\/p>\n

But if that home office also doubles as a guest bedroom, it wouldn\u2019t qualify. Same goes for if you\u2019re using that space to do your day job. The IRS takes the word \u201cexclusively\u201d pretty seriously here when it says you need to use the space exclusively for your business purposes.<\/p>\n

To avoid running afoul of the rules, be cautious about what you keep in your home office. Photos, posters and other decorations are fine. But if you move your gaming console, exercise equipment or a TV into your office, that\u2019s probably not. Even mixing professional books with personal books could technically cross the line.<\/p>\n

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Getty Images<\/figcaption><\/figure>\n

4. You don\u2019t need a separate room.<\/b><\/p>\n

There needs to be a clear division between your home office space and your personal space. That doesn\u2019t mean you have to have an entire room that you use as an office to take the work-from-home tax deduction, though. Suppose you have a desk area in that extra bedroom. You can still claim a portion of the room as long as there\u2019s a marker between your office space and the rest of the room.<\/p>\n

5. The space needs to be your principal place of business.<\/b><\/p>\n

To deduct your home office, it needs to be your principal place of business. But that doesn\u2019t mean you have to conduct all your business activities in the space. If you\u2019re a handyperson and you get paid to fix things at other people\u2019s houses, but you handle the bulk of your paperwork, billing and phone calls in your home office, that\u2019s allowed.<\/p>\n

There are some exceptions if you operate a day care center or you store inventory. If either of these scenarios apply, check out the IRS rules<\/a>.<\/p>\n

6. Mortgage and rent aren\u2019t the only expenses you can deduct.\u00a0<\/b><\/p>\n

If you use 20% of your home as an office, you can deduct 20% of your mortgage or rent. But that\u2019s not all you can deduct. You\u2019re also allowed to deduct expenses like real estate taxes, homeowners insurance and utilities, though in this example, you\u2019d be allowed to deduct only 20% of any of these expenses.<\/p>\n

Be careful here, though. You can deduct expenses only for the part of the home you use for business purposes. So using the example above, if you pay someone to mow your lawn or you\u2019re painting your kitchen, you don\u2019t get to deduct 20% of the expenses.<\/p>\n

You\u2019ll also need to account for depreciation if you own the home. That can get complicated. Consider consulting with a tax professional in this situation. If you sell your home for a profit, you\u2019ll owe capital gains taxes on the depreciation. Whenever you\u2019re claiming deductions, it\u2019s essential to keep good records so you can provide them to the IRS if necessary.<\/p>\n

If you don\u2019t want to deal with extensive record-keeping or deducting depreciation, the IRS offers a simplified option: You can take a deduction of $5 per square foot, up to a maximum of 300 square feet. This method will probably result in a smaller deduction (the max possible is $1,500), but it\u2019s less complicated than the regular method.<\/p>\n

7. Relax. You probably won\u2019t get audited if you follow the rules.<\/b><\/p>\n

The home office deduction has a notorious reputation as an audit trigger, but it\u2019s mostly undeserved. Deducting your home office expenses is perfectly legal, provided that you follow the IRS guidelines. A more likely audit trigger: You deduct a huge amount of expenses relative to the income you report, regardless of whether they\u2019re related to a home office.<\/p>\n

It\u2019s essential to be ready in case you are audited, though. Make sure you can provide a copy of your mortgage or lease, insurance policies, tax records, utility bills, etc., so you can prove your deductions were warranted. You\u2019ll also want to take pictures and be prepared to provide a diagram of your setup to the IRS if necessary.<\/p>\n

As always, consult with a tax adviser or consider using tax prep software like TurboTax<\/a> or H&R Block<\/a> if you\u2019re not sure whether the expense you\u2019re deducting is allowable. It\u2019s best to shell out a little extra money now to avoid the headache of an audit later. <\/i><\/p>\n

Robin Hartill is a certified financial planner and a senior writer at The SS. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email\u00a0protected]<\/span>.<\/i><\/p>\n

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