You may be able to deduct home office expenses if you run a business from home. Learn more here.
Many people began working from home during the COVID-19 pandemic — and many still run a business from home offices either all the time or on a hybrid basis. If you’re self-employed and run a business from home or perform certain functions there, you might be able to claim deductions for home office expenses against your business income. There are two methods for claiming this tax break: the actual expense method and the simplified method.
You can qualify for home office deductions if part of your home is used as your principal place of business. Whether regularly or partially.
If your home isn’t your principal place of business, you may still be able to deduct home office expenses if:
- You physically meet with patients, clients, or customers on your premises, or
- You use a storage area in your home (or a separate free-standing structure, such as a garage) exclusively and regularly for business.
Expenses you can deduct
Many eligible taxpayers deduct actual expenses when they claim home office deductions. Deductible home office expenses may include:
- Direct expenses, such as the cost of painting and carpeting a room used exclusively for business,
- A proportionate share of indirect expenses, including mortgage interest, rent, property taxes, utilities, repairs, and insurance, and
But keeping track of actual expenses can take time and 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 a maximum of $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.
You’re not stuck with a particular method when claiming home office deductions. For instance, you might choose the actual expense method on your 2022 return, use the simplified method when you file your 2023 return next year, and then switch back to the actual expense method for 2024. The choice is yours.
What if I sell the home?
If you sell — at a profit — a home on which you claimed home office deductions, there may be tax implications. We can explain them to you.
Also, be aware that the amount of your home office deductions is subject to limitations based on the income attributable to your use of the office. Other rules and limitations may apply. But any home office expenses that can’t be deducted because of these limitations can be carried over and deducted in later years.
Different rules for employees
Unfortunately, the Tax Cuts and Jobs Act suspended the business use of home office deductions from 2018 through 2025 for employees. Those who receive paychecks or Form W-2s aren’t eligible for deductions, even if they’re currently working from home because their employers closed their offices due to COVID-19.
Contact us if you’d like for us to help you determine if you’re eligible for home office deductions and how to proceed in your situation.