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Tax Deductions

Using the Home Office Tax Deduction

When you’re preparing your taxes, you want to make sure you utilize all the deductions you qualify for. If you work from home, the home office tax deduction sounds like it might apply to you. In reality, it’s not that simple

Do you qualify for a home office deduction?

Before calculating how much you could save with a home office tax deduction, you must assess whether or not you qualify. In order to claim the deduction, you must be self-employed. This includes independent contractors, freelancers, gig economy workers, and partners. Unfortunately, employees are not able to benefit from work from home tax deductions.

To be eligible, you must use your home office regularly and exclusively as either the principal location of your business or to meet with customers. This space doesn’t need walls to separate it from the rest of your house, but it can’t be used for any other purpose throughout the year. There are other ways to qualify for work from home tax deductions, including spaces used regularly (but not exclusively) to store inventory or samples and separate structures on your property that are used “in connection with” your business.

Self-employed individuals who use their home or a free-standing structure on the property regularly and exclusively for business are eligible, regardless of whether they own or rent the home. Even nontraditional living spaces qualify for the home office deduction, including boats and mobile homes. Qualifying free-standing spaces include greenhouses, studios, and garages.

How much can you deduct for your home office?

If you do qualify for a home office tax deduction, the next step is determining how much of your home’s expenses can be written off as business expenditures. There are two ways to calculate your home office deduction:

1. Regular Method

This method is more complex and time-consuming. However, it can result in a larger tax write off for working from home. To use the regular method of calculating your deduction, you’ll need to know the cost of any updates you made within your office space. You’ll also need to calculate the total cost of maintaining your home (including utilities, security system, insurance, etc.), as well as what percentage of your home your office occupies. You’ll use this information to determine how much of your home expenses can be attributed to your home office.

2. Simplified Method

The simplified method is generally easier to calculate; it could result in a smaller deduction though. To use this method, you’ll multiply the square footage of your office space (up to 300 square feet) by $5. You must also determine your gross income minus business expenses not related to your residence. Whichever of these numbers is less will be your deduction.

Regardless of which method you use to determine your home office tax deduction, it is limited by your gross income. The working from home tax write off you claim cannot be larger than your gross income minus your business expenses. If you only work from home for part of the year, you can claim the home office tax deduction on a prorated basis. No matter how you claim your home office, take a photo to store with your tax information for the year. If the IRS does audit your taxes due to your home office deduction, you’ll have evidence of how you used the space

Still not sure how to prepare your tax return?

If you’re not sure if you qualify for any work from home tax deductions or how to calculate them, contact the experienced CPAs at East Coast Tax Consulting Group!

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You deserve the best in IRS tax representation, tax preparation, and tax planning services. At East Coast Tax Consulting Group, you’ll work with a licensed CPA who will handle your case from beginning to end. We invite you to contact our team to schedule a free, confidential consultation.