How to claim the home office deduction

There are two options, depending on how detailed your recordkeeping was.

Derek Silva

Derek Silva

Published April 17, 2020

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KEY TAKEAWAYS

  • To claim the home office deduction, a home office must be used regularly and exclusively for your business

  • There is a simplified calculation method that deducts $5 per square foot, for up to $1,500

  • The regular calculation method allows you to deduct your exact expenses, but requires more record keeping

  • Regular employees cannot take the home office deduction for working from home

The home office deduction allows you to deduct any portion of your home that is used as your office. Even just a nook or corner could serve as your home office. To qualify, your home must generally serve as a base for administration of your business, even if you need to travel to meet with clients or customers. Your office must also be used exclusively for your business. So an extra bedroom doesn’t qualify if friends sleep in there while visiting.

There are two ways to calculate the home office deduction. The simplified method (sometimes called the safe harbor method) allows you to deduct up to $1,500 based just on the square footage of your office. The regular method allows you to deduct the exact value of your expenses, but you need to maintain records of your spending during the year.

After the 2017 tax reform, you can no longer deduct office expenses with miscellaneous itemized deductions. The office tax deduction is limited almost exclusively to self-employed people and small business owners. Deductible expenses include those you make directly for your office, like buying office supplies. You may also be able to deduct a portion of the expenses for your entire home, like electricity bills, based on what percentage of your home’s total square footage is your office.

For more help filing your taxes in 2020, start with our guide to filing income taxes.

In this article:

Who qualifies for the home office deduction

You generally need to be self-employed (meaning you pay self-employment tax) or otherwise own a business to claim the home office deduction. You can qualify if you have self-employment income outside of your regular job, but you can only deduct expenses related to your self-employment work.

Regular employees, including people working from home because of COVID-19, cannot deduct work-from-home expenses or claim the home office deduction. Learn more about how coronavirus will affect your taxes.

What qualifies as a home office

Your home office must meet two conditions:

  • Your home is your principal place of business
  • All or part of your home is used exclusively and regularly for business

As long as you satisfy those two requirements, it doesn’t matter whether your home office is in a house, condo, apartment, garage, studio, or barn. But you can only claim a fixed place, meaning no hotel rooms or temporary spaces. You don’t need to have a dedicated room, either. A home office could be one corner of your living room, as long as it meets the two requirements.

Expenses for a separate structure, like a studio or greenhouse, may also qualify for the home office deduction. For example, if you’re a florist with a home office and a greenhouse you use just for your business, you can deduct expenses for both.

Similarly, you can deduct expenses for a second location you use and maintain for meeting clients, customers, or patients. This applies to attorneys and doctors in particular.

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What’s a principal place of business?

Your home office must usually be the primary place where you do administrative or management activities for your business. It doesn’t need to be the primary place where you conduct all business activities. You can still claim a home office if you travel to provide some client services in person. You can also claim a home office if you maintain a space strictly for meeting with customers.

Understanding exclusive and regular use

You can continue to live in your home like you normally do, but at least part of your home must be used exclusively for business. For example, a spare bedroom doesn’t qualify you for the deduction if you also rent it out for part of the year or simply let visiting family members sleep there. If your business involves renting out property, like through Airbnb, your home office must be a distinct space that you do not rent out.

You also need to use the office regularly. You can’t claim a place you use just a few days per year as your office. In general, your home office needs to function as the base for your business. It’s fine if you perform some business functions outside of your home. It’s also fine if you provide services by meeting clients, customers, or patients somewhere other than your home. (Travel expenses are deductible elsewhere on Schedule C as business expenses.)

Exceptions

There are two exceptions to the exclusivity requirement, and they allow you to deduct business space in your home that you also live in.

One exception is if you regularly use your home to provide daycare services for children, the elderly, or people with disabilities. To qualify, you must have (or be exempt from having) a valid certification, license, registration, or other form of state approval to operate a daycare center.

If you use part of your home for storing inventory or product samples, you can also deduct expenses through the home office deduction, without meeting the exclusivity requirement. However, your business must involve selling the items you’re storing, and your home must be the only fixed location you use for business.

How to calculate your home office deduction

There are two ways to calculate your home office deduction:

  • The simplified method doesn’t require you to have a detailed record of your expenses, but the maximum available deduction is $1,500 in 2020.
  • The regular method allows you to deduct the value of your exact expenses, but you need to have more detailed receipts and records of your spending.

Note that for both methods, the value of your deduction cannot exceed the gross income from your business.

The simplified method

The value of the home office deduction with the simplified method is the square footage of your home office multiplied by $5. However, the maximum deduction is $1,500 because you can only deduct up to 300 square feet.

The simplified option is good for taxpayers who don’t have many business expenses or who haven’t kept close track of all their business expenses. One shortcoming with this option is that if your expenses were more than your gross income, you can only deduct up to the value of your income. The regular method allows you to carry over losses to deduct on the next year’s taxes.

If your home office is for daycare services you provide in your home, you calculate your home office deduction by multiplying $5 by the portion of the year your home is used as a daycare and then by your office’s square footage (300-square-foot maximum). Calculate the portion of the year as a decimal: the number of hours you provide daycare services during the tax year divided by the total number of hours during the tax year.

The regular method

With the regular method, the value of your actual business expenses is the value of your home office deduction. This option is useful if you have more than $1,500 of expenses to deduct. The maximum deduction is your company’s gross income, but you can potentially carry over the value of losses and deduct them on next year’s taxes.

However, this actual expense method requires you to keep receipts or detailed records throughout the year. Make sure to keep your records for at least three years, in case the IRS audits you and you need to prove your deduction was accurate. (Don’t let the fear of an audit keep you from claiming this deduction. Audits are still rare.)

You can calculate your deduction with the regular method by using Form 8829, which allows you to itemize all of the expenses you’re deducting. To deduct expenses that were for your home and not strictly for your office, like a monthly heating bill, only use the portion of the bill equal to the portion of your home that is your office. If 25% of your home is your office, you can deduct 25% of your home’s heating bill through the regular method.

Expenses you can use for the home office deduction

If you use the regular method to calculate your home office deduction, you can deduct the cost of most things you use for your office.

The IRS distinguishes between three kinds of expenses:

  • Direct expenses are exclusively for your office or business, like buying a desk or stapler. These are fully deductible.
  • Indirect expenses are for your entire home, not just your office, so you can only deduct the portion equal to the portion of your home that is your office. If 10% of your home is your office, you can deduct 10% of your home utility bills as a business expense.
  • Unrelated expenses are for your home but don’t affect your business. You cannot deduct these. Examples include lawn care, painting your house’s exterior, and home renovations.

Direct expenses you can deduct for the home office deduction:

  • Furniture and appliances, including desks, chairs, lamps, printers, and even decor
  • Office supplies like paper, ink, staples, or stamps
  • A second phone, if used exclusively for business (your home’s first landline isn’t deductible)
  • Long-distance calls for your business
  • Repairs and maintenance, like painting your office walls or repairing a light fixture

Indirect expenses you can deduct for the home office deduction:

  • Home utilities, including electricity, gas, and heat
  • Trash removal for your home
  • Cleaning services
  • Internet
  • Cost to install and maintain a security system
  • Home repairs and maintenance that affect your office, not including permanent improvements such as home remodeling or renovating a building to turn it into an office
  • Renters insurance
  • Rent, if you rent your home or your office space
  • Homeowners insurance
  • Mortgage interest (also look into the mortgage interest deduction)
  • Mortgage insurance premiums, including PMI
  • Property taxes, which the IRS calls real estate taxes
  • Condominium fees and homeowners association fees
  • Depreciation of your home, if you own it (see IRS instructions for Form 8829 to learn more)
  • Casualty losses, like from a fire or flood, unless it’s a federally declared disaster

How to claim the home office deduction on your tax return

How you claim the home office deduction on your taxes will depend on which method you use to calculate your deduction.

If you choose the simplified option, use the “Simplified Method Worksheet” from the Schedule C instructions and then write the value of your deduction on line 30 of Schedule C. If you're deducting multiple home offices, you can only use the simplified method on one of them. You must use the regular method for the rest.

To use the regular method, complete Form 8829 to calculate your exact deduction and write the result on line 30 of Schedule C. Fill out a copy of Form 8829 for each office you used for business, and make sure to attach the completed forms to your tax return.

For partnerships and multi-member LLCs, you will use Schedule E instead of Schedule C.

For more help filling out your tax return, here’s our guide to Form 1040.

Itemizing with the home office deduction

The Tax Cuts and Jobs Act of 2017 increased the standard deduction and made it disadvantageous for most people to itemize. Starting in 2018, you also cannot deduct the costs of working from home as miscellaneous itemized deductions (for unreimbursed employee expenses).

If you use the simplified method to calculate the home office deduction, you can itemize deductions just as you normally would.

If you use the regular method, you cannot deduct the same expense on Schedule A and for the home office deduction. So if you deduct $5,000 of property taxes as an itemized deduction, you cannot deduct any portion of that $5,000 for the home office deduction. However, let’s say you can't deduct the full value of your your property taxes because of the $10,000 limit on the state and local tax deduction. You could use any excess property taxes for the home office deduction (but only for the proportion of your home that was used as an office).

Learn more about how to itemize deductions on your tax return.

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About the author

Personal Finance Expert

Derek Silva

Personal Finance Expert

Derek is a tax expert at Policygenius in New York City. He has written about multiple personal finance topics in the past, and his work has been covered by Yahoo Finance, MSN, Business Insider and CNBC.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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