Topic no 509, Business use of home Internal Revenue Service

As you can see, the main factors the IRS looks at are the regular and exclusive use of a specific area in your home for your business. To meet the exclusive use test, your home office or studio needs to be your principal place of business — not a mix of personal and business activities. And to meet the regular use test, you must regularly use your home office space for business purposes. If you only conduct business from home occasionally, it doesn’t count in the eyes of the IRS. If you work from home, you may be able to deduct your business-related expenses. But if you don’t qualify for that, you could be eligible for the “home office tax deduction.” This tax break lets you write off expenses for the business use of your home.

The simplified home office deduction (simplified method)

Many business owners skip this deduction because they think they don’t qualify or fear an IRS audit. One final bonus of having a home office as your principal place of business is that travel between home and work locations is considered a deductible business expense. So, when you are sitting in traffic wishing you were working from home, take heart that you can deduct the miles to and from the office from your taxes.

National Tax Reports 2024 & 2025

For the 2020 tax year (filing in 2020), you can only claim mortgage interest on up to $750,000 worth of mortgage debt ($375,000 for married taxpayers filing separately). You can claim real estate taxes on up to $10,000 ($5000 for married taxpayers filing separately), according to Forbes. But the cost of a second line and any business-related long distance charges can be expensed. Deduct this expense on line 25 of Schedule C. Internet and cell phone charges can also be expensed, but you can only deduct the percentage you use for business. Most business furniture and equipment can’t be written off as a deductible expense. The home office deduction form is Schedule C. You report business use of your home on line 30.

Typical W-2 employees who work remotely are not eligible to claim the home office deduction. To qualify for this tax deduction, you must use a portion of your home exclusively for your business. In other words, setting up a temporary workspace on your dining table won’t qualify you for this tax break. But the home office tax deduction is an often-overlooked tax break for the self-employed.

Business Furniture and Equipment

• You can use Parts II and III of Form 4562 to claim depreciation on home office assets like equipment, furniture, or computers.
• That being said, the simplified option also has limitations and may not always result in the highest deduction compared to the actual expense method.
• Combine all amounts calculated using the simplified method and amounts calculated using Form 8829, and then enter the total on Line 30 of the Schedule C you file for the business.
• Self-employed individuals may claim the home office tax deduction and, consequently, might lower their tax bill.
• Importantly for those seeking this tax deduction, the office must be used “exclusively and regularly” for business purposes, according to the IRS.

You can deduct only your home office’s depreciation by multiplying the percentage of your home used for business by the total depreciation. However, it’s important to ensure that you meet the eligibility requirements and that you accurately calculate your deduction using the simplified or regular method. If you’re a self-employed individual or a small business owner that works from home, you may be eligible for the home office tax deduction.

But claiming it when you don’t qualify can raise red flags with the IRS. While the home office deduction isn’t as accessible as it once was, it’s still worthwhile for millions of taxpayers who rely on using their homes for business purposes. Richards notes that there are a few states that still allow employees to deduct unreimbursed home office expenses that are required for full-time work. The TCJA is set to expire at the end of 2025, and it’s currently unclear whether or not Congress will choose to extend these provisions. “Self-employed individuals, independent contractors, and business owners who use a dedicated space for work can claim a home office deduction,” says Rachel Richards, CPA and Head of Product at Gelt. Many Americans may think that because they work from home, they can take tax deductions for a portion of their rent, utilities and more.

One of the significant advantages of the simplified method is its simplicity and ease of use. Instead of tracking and allocating specific expenses related to your home office, you can use a standard rate per square foot, saving you time and effort. This is especially beneficial if you’re a small business owner who doesn’t have the time or expertise to commit to more complex tax calculations. The simplified method allows you to multiply the square footage of your home office space (up to 300 square feet) by a flat $5 rate. The IRS created this straightforward calculation to make it easier for the self-employed to determine their home office deduction.

Self-Employed Tax Deductions Calculator

The office can also be a section of a room, and you can show that personal activities are excluded from the business section. After completing Form 8829, you’ll transfer all your allowable expenses to Schedule C (Form 1040). If you file with us at TaxAct®, we make this process easy by asking you detailed interview questions and using your answers to fill out the applicable tax forms. The size of your home also plays a significant role in determining your deduction amount, so make sure you know the square footage of your home office home office deductions to make your calculations.

Eligible taxpayers don’t have to do complex calculations

An easier calculation is acceptable if the rooms in your home are all about the same size. In that case, you can figure out the business percentage by dividing the number of rooms used in your business by the total number of rooms in the house. In addition to passing the exclusive- and regular-use tests, your home office must be either the principal location of that business or a place for regular customer or client meetings.

• To be eligible for the home office tax deduction, you must meet certain requirements.
• The simplified method allows you to multiply the square footage of your home office space (up to 300 square feet) by a flat $5 rate.
• It helps calculate your net profit or loss from your business activities, which flows into your overall tax return, Form 1040.
• Services like appraisals and title insurance can’t be written off, according to H&R Block.
• You can deduct any insurance, such as home insurance, but only for the business part of your house.
• The home office deduction can save you money — but only if you follow the IRS rules carefully.

Finally, if you’re an employee that works from home, you must meet additional requirements to be eligible for the home office tax deduction. Your employer must require you to work from home, and your home office must be for the convenience of your employer. In this article, we’ll explore everything you need to know about the home office tax deduction, including eligibility requirements, what expenses can be deducted, and how to calculate your deduction. Use this figure to determine the percentage of mortgage payments, utilities, repairs, insurance, and other applicable expenses that you can deduct.

As with many tax rules, there are several common misconceptions about the home office deduction that can sometimes lead to unrealistic expectations. Yes, this deduction lowers your taxable income, which can be valuable and save you money. But unlike a tax credit, it won’t result in a dollar-for-dollar tax reduction.

Simplified vs. actual expenses: How to choose the best deduction method

For this, you would divide the square footage of your home office or workshop by the total square footage of your home. If your home office is 200 square feet and your home is 2,000 square feet total, your business use percentage would be 10%. Therefore, you can claim 10% of your housing expenses as a deduction.

How the home office deduction is taken depends on a variety of factors, including the type of business (sole proprietorship, s-corporation, or partnership). The regular method requires you to calculate the actual expenses related to your home office. This includes determining the percentage of your home that is used for business purposes, and multiplying that percentage by the total cost of your home expenses. You can also claim deductions for a portion of other expenses such as rent or property taxes, home depreciation, and utilities ‒ based on the proportion of the space to the rest of your house.

Beginning with 2013 tax returns, the IRS began offering a simplified option for claiming the deduction. This new method uses a prescribed rate multiplied by the allowable square footage used in the home. Making money from your efforts is a prerequisite, but for purposes of this tax break, profit alone isn’t necessarily enough. If you use your den solely to take care of your personal investment portfolio, for example, you can’t claim home office deductions because your activities as an investor don’t qualify as a business. For instance, you may qualify if you work in a dedicated area of your home, like a spare bedroom or unattached garage. However, spaces used for both personal and business purposes don’t meet the “exclusive use” requirement unless they fall under certain exceptions, such as inventory storage or daycare services.

Self-employed individuals may claim the home office tax deduction and, consequently, might lower their tax bill. Yet to qualify, you must use part of your home “regularly and exclusively” as your principal place of business. Deductible expenses for business use of your home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs. In general, you may not deduct expenses for the parts of your home not used for business, for example, lawn care or painting a room not used for business. Unfortunately, “regular” employees who work from home cannot deduct home office expenses on their federal tax return.

Regardless of your chosen method, it’s still crucial to keep detailed records of your direct and indirect expenses to support your home office deduction claims. Keep receipts, bills, invoices, and any other relevant documents in case the IRS ever asks for them. Good recordkeeping will also help you make accurate calculations to maximize your tax benefits. For example, if your home office is 200 square feet and your home is 2,000 square feet in total, your business use percentage would be 10%. So, if your annual property tax bill is $5,000, you could deduct $500 (10% of $5,000) as a business expense related to your home office. Well, you may want to know if you can still claim a home office tax deduction on your federal income tax return.