If you’ve been working from home during the COVID-19 outbreak, you might be wondering whether you’re eligible for the home office tax deduction. Perhaps your office has switched entirely to remote working because of the health crisis, or maybe you lost your job and have set up as a freelancer or contractor operating from home. Whatever your circumstances, understanding everything about home office tax deductions is a must before dusting off the best tax software and filing, and that’s where we can help.
Who is eligible for the home office tax deduction?
Essentially, the home office tax deduction is a benefit that can allow American taxpayers working from home to deduct certain costs on their tax return. Importantly, however, the home office deduction is currently only available to qualifying self-employed taxpayers, independent contractors and gig economy workers.
It used to be the case that workers who used an office at home on the agreement of their employer qualified for the same deductions. However, the Tax Cuts and Jobs Act changed all of that, and since the 2018 tax year, through 2025, employees who receive a paycheck or a W-2 exclusively from an employer do not qualify for the home office deduction, even if they are currently working from home.
Do I qualify for the home office tax deduction?
Even if you’re self-employed, a contractor or gig worker, there are still two further requirements that must be met in order to qualify for the home office tax deduction.
Regular and exclusive use
The home office where you’re working must be used exclusively and regularly for conducting business. This means that someone using a room jointly as an office and a playroom for their children probably won’t be able to take a home office deduction for that room. However, remove the toys, and use it solely as your office on a day-to-day basis, and you might qualify.
Two potential exceptions can apply to this rule. Firstly, home office tax deductions can probably still be claimed if the space in your home being used as an office is also being used to provide licensed daycare services for children, people aged 65 or over, or people who are physically or mentally unable to care for themselves. And secondly, an exception can also apply if the space is being jointly used to store inventory or product samples sold in the normal course of your business.
Principal place of your business
The second requirement is that any home office must be your principal place of business. That means considering whether you perform your most important business activities in your home office or elsewhere, and where you spend most of your work-related time. The IRS says a portion of your home is likely to qualify as your principal place of business if it’s used for administrative or management activities, and have no other fixed location from where these activities are regularly conducted.
What is covered by the home office tax deduction?
Costs that can be directly attributed to your self-employed home office space, such as repair and maintenance expenses, are usually fully home office tax deductible. At the same time, there are also some indirect expenses that can be claimed as well, including real estate taxes, mortgage interest, part of your rent, utilities, security monitoring and casualty insurance premiums. If you use your smartphone for work as well, you’re entitled to claim the business use of your cell phone plan as a home office tax deduction as well.
However, what the IRS makes clear is that expenses may not be deducted for any parts of the home not used for business. That means if you’re looking to buy a lawnmower to keep your garden tidy, or decorate a room not used for work purposes, you’re out of luck.
How to calculate your home office tax deduction
The IRS allows two broad methods for working out your home office tax deduction. Either can be used, but most people will understandably use the method that provides them with the highest overall deduction.
The simplified option
Under the simplified option, qualifying taxpayers use a prescribed rate of $5 per square foot of the portion of the home used for business (up to a maximum of 300 square feet) to calculate the business use of home deduction. So someone who “exclusively and regularly” uses a 200-square-foot home office for their business can claim a home office tax deduction of $1,000 (200 sq. feet x $5). The deduction can be claimed directly on IRS Schedule C.
The regular method
Using the regular method, your home office tax deduction is determined by adding up what you’ve paid out over the course of the year to maintain your home office, and then multiplying this by the percentage of your home that you use for work purposes.
So if your home covers 2,000 square feet in its entirety, and 200 square feet of this is your home office space, your deduction will be for 10% of your expenses. So if your homeowners insurance is $400, your home office tax deduction for this particular expense will be $40. Self-employed taxpayers filing IRS Schedule C can first figure this deduction on the IRS website using Form 8829, Expenses for Business Use of Your Home.
What to do if you don’t qualify
If you’re remote working due to the pandemic and clocking up expenses which can’t be claimed under the home office tax deduction rules because you’re employed, it may be worth talking to your employer to see if they’ll reimburse some or all of the expenses you’re paying out for.
Politely point out that these expenses are coming out of your own pocket through little fault of your own, and yet you can’t claim deductions against your taxes. Of course, employers are not obliged to act on your request, but it’s often worth asking.