Read This Before You Claim a Home Office Deduction

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You might think you’re entitled to this deduction when you actually aren’t. 

Most of us would like to pay as little money in taxes as possible. And snagging the right deductions could make that possible.

There are different items you’re allowed to deduct on your tax return, like IRA account contributions and the interest you pay on your mortgage. But one often-misunderstood tax deduction is the home office deduction.

These days, a lot of people work from home in some capacity. If you’re one of them, you may be eager to score a tax break for having a home office when you file your taxes. But that doesn’t mean you’re eligible for this particular benefit.

Who can claim a home office deduction?

It’s a big misconception that anyone with a home office can write it off on their taxes. To claim this deduction, you must be self-employed. Period. If you’re a salaried worker, you cannot claim a home office deduction — even if you work from home 100% of the time.

With that in mind, you’ll still need to meet two criteria to claim a home office deduction if you’re self-employed.

First, your home office’s primary function should be to serve as a workspace. If you typically work at your kitchen table, that doesn’t count, because the primary function of that room is to prepare and store food.

However, if you have a four-bedroom home, and one bedroom is equipped with a desk, chair, electronics, and everything else you need to do your job, then that counts. And for the record, yes, your child can occasionally sit at your desk to do their homework, and you’ll still be entitled to the deduction. The IRS just wants the main function of the area in question to be an office.

The second criteria is that your home office must constitute your primary place of business. If you rent an office in town but work from your home office once a week, it won’t count.

How to calculate your home office deduction

You have two options for determining how much you can claim for your home office deduction. The easiest option is to use a simplified method, which lets you claim $5 per square foot of space, up to a maximum of 300 square feet, or $1,500.

But in many cases, it makes more sense to figure out what percentage of your home your office takes up, and then deduct that portion of your total home expenses. So let’s say you own a 2,000-square-foot home and your office takes up 200 square feet, or 10%. What you’d then do is add up costs like utility bills, property taxes, maintenance, and so forth, and then deduct 10% of that total.

It’s a good idea to run the numbers using both methods to see which one results in a higher home office deduction. In this example, the simplified method would give you a $1,000 tax break ($5 per square foot x 200 square feet of office space). But let’s say you spend a total of $20,000 a year between property taxes, utilities, maintenance, and other costs. If you’re able to deduct 10% of that total, you get a $2,000 deduction, which makes more financial sense.

Know the rules

The home office deduction can be a very lucrative tax break, but it’s important to know the rules involved. And if you’re not sure if you can claim it, do yourself a favor and consult a tax professional so you don’t end up claiming the wrong deduction, or taking a deduction you aren’t actually eligible for.

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