Working from home? Don’t expect a tax break
Q: Now that I’m working out of my house because of the pandemic, can I deduct the expense of my home office?
A: In the past, employees who were required to work remotely could deduct the cost of their home office. Unfortunately, that’s no longer the case.
The 2017 tax law eliminated a provision in the tax code that allowed workers to deduct unreimbursed business expenses, including the cost of a home office, as long as the expenses exceeded 2% of their adjusted gross income.
Even before then, it was difficult for employees to claim this deduction because they had to meet the “convenience of the employer” test — which meant that they were required to work remotely. Those who merely had the option of working from home were ineligible. Working from home during the pandemic likely would have met the test because most employees whose offices were closed had no say in the matter, says Nathan Rigney, lead tax research analyst for H&R Block.
Who can now claim the deduction? Workers who are self-employed or have a side hustle can still claim the home office deduction, and expenses don’t have to exceed 2% of their AGI.
Likewise, you’re eligible to claim the home office deduction if you’re an independent contractor, even if you worked in an office before the pandemic, Rigney says. Keep a record of the day you started working from home, because you’re only permitted to claim expenses incurred since that time.
To claim this deduction, you must have a place in your home that’s used “exclusively and regularly” for business. It doesn’t have to be a separate room, as long as the space you use — a desk in the corner of your bedroom, for example — is used exclusively for business purposes.
Once you’ve set up your home office, you can claim the deduction using one of two methods. With the actual expense method, you multiply all of your home-related expenses, such as your mortgage or rent, utilities and homeowners (or renters) insurance, by the percentage of your home dedicated to your home office. For example, if your office takes up 10% of your home, you would deduct 10% of those bills.
The IRS offers a simplified method to calculate this deduction: Measure the square footage and multiply it by $5, up to a maximum deduction of $1,500. If your home office takes up 200 square feet, for example, you would deduct $1,000. Although the first method requires more record keeping, you’ll probably get a larger deduction by deducting a percentage of your actual costs, Rigney says.
Sandra Block is a senior editor at Kiplinger’s Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com.