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If you work from home as a contractor, freelancer, or small business owner, the home office deduction should be top of mind as you get ready to file your tax return.
The IRS permits a tax deduction for the part of your home you use for work, provided that you and your space meet certain requirements.
Here’s what to know about this tax break, the rules for claiming it, and how to calculate your total deduction.
First, you can’t claim the home office deduction unless you itemize your taxes, so if you plan to take the standard deduction, your home office won’t help you save.
There are a few other important rules to be aware of.
Who qualifies and how it works
You generally need to be a self-employed business owner, freelancer, or independent contractor — not a remote employee — to write off your home office space. Remote employees could claim this deduction in the past, but the 2017 Tax Cuts and Job Act eliminated certain unreimbursed employee business expense deductions, including deductions for a dedicated office space.
Your home and office space will also need to meet certain requirements. The IRS defines a home, for purposes of the deduction, as a house, condominium, apartment, mobile home, boat, similar property, or a space in an unattached garage, barn, or studio.
Beyond that, your office must meet the following criteria:
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Be an area of your home or a separate structure that you use exclusively (or almost exclusively) and regularly for business activities. So it can’t also be your living room where you watch television with your family or your dining table where you eat meals.
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Be your principal place of business where you work or meet with customers. If you own a daycare or storage facility, other rules and exceptions may apply.
There are two ways to calculate your home office deduction: the simplified method and the actual expense method. Here’s how each works:
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Simplified method: The simplified method is arguably the easier formula. To calculate your total deduction, you multiply the square footage of your office by a rate the IRS sets. For the 2024 tax year, the rate is $5. If you use the simplified version, the maximum square footage you can claim is 300, and your maximum deduction is $1,500.
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Actual expense deduction method: The actual expense method, aka the regular method, could result in a larger deduction, but the calculation is more complicated. Instead of multiplying the square footage of your office by a prescribed rate, you calculate your office space as a percentage of your home. Divide the square footage of your office by the square footage of your entire home, then use that percentage to determine the indirect costs of using your space. For example, if your home is 1,200 square feet and your office space is 240 square feet of that area, your business percentage is 20% (240 divided by 1,200) of your home. Indirect costs include mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent. Direct costs, such as new carpet or repairs, are fully deductible.
Read more: 18 small business deductions worth knowing
Here are two examples of how the home office deduction works, using both the simplified option and the actual expense approach. For this example, we’ll assume your office is 275 square feet.
Simplified method: Again, there’s just one math problem to do. Multiply the square footage of your office space by this year’s IRS rate.
Office square footage x prescribed rate = total deduction
275 x $5 = $1,375
Your total deduction is $1,375.
Now, here’s how you calculate your deduction using the actual expense method, assuming your home is 2,000 square feet.
(Total square footage of your office / total square footage of your home) x 100 = use percentage
(275 / 2,000) x 100 = 13.75%
Multiple that business use percentage against your indirect costs (mortgage interest, utilities, homeowners insurance, property taxes, etc.) = indirect cost deduction
Let’s say all your indirect expenses add up to $15,000, and your direct costs after repairing a window in your office total $300. (Remember that direct expenses are fully deductible.) Here’s your formula:
13.75% x $15,000 = $2,062.50
$2,062.50 + $300 = $2,362.50
Your total deduction is $2,362.50.
In this case, the actual expense method provides a considerably larger income tax deduction. A reputable tax software can simplify the process of calculating your actual expense deduction.
You likely won’t qualify for the home office deduction on your federal tax return if you’re a W-2 employee using a portion of your home for work. Prior to the 2018 tax year, remote employees could deduct certain unreimbursed business expenses, including home office costs. But the Tax Cuts and Job Act changed the rules about allowable deductions. That said, you may still be able to deduct your home office expenses from your state income taxes depending on where you live.
Whether you should take the home office deduction (if you’re eligible to do so) depends on your situation. Some taxpayers may benefit more from taking the standard deduction, but if you’ve determined your tax savings will increase by itemizing, deducting your home office expenses could make sense. Talk to a tax professional about what itemized deductions you qualify for to determine the best course of action.
For the purposes of the home office deduction, exclusive use means your office space is solely used for business purposes. For instance, your living room wouldn’t meet the exclusive use requirement, even if you work there 100% of the time because it’s likely also used as a relaxing space for your family. The same goes for your dining room, family room, or kitchen.