Is my home office tax deductible?

What are the IRS rules for home office deduction?

There are a couple of main factors the IRS considers for a home office.

• A dedicated area that is separate from the living area of your home.
• An area of your home that is used only for business.

There are lots of myths, rumors, mistakes, and tax information out there that are just plain wrong, related to working from home and the home office deduction.

The IRS describes a home office as an area used only for business to either meet clients, maintain books, and conduct other business-related needs. But used exclusively for this purpose, the area must be completely separate from all other family living areas in the residence. This means that sitting at your kitchen table drafting your emails, or walking the dog during a conference call, does not qualify as a home office in the eyes of the IRS, sadly.

When is a home office allowed & what are the requirements?

Qualifying for a home office deduction not only depends on your work-from-home setup, but also on your job status.

Consider your current role and whether the following pertains to you.

• You’re self-employed
• You’re working a side gig
• You own a farm

In a nutshell, if you’re a business owner or a freelancer, or you own a farm, then you qualify to claim the home office deduction. For all other home office purposes, unfortunately, tax law doesn’t currently allow a deduction. 

How much tax can you write off for your home office?

The amount of our deduction is based on the max of $3,000 if using the simple method or the appropriate business percentage of our home expenses. There are a few things you need to have when calculating your tax deduction. 

• Square footage of home and office – used to calculate our business percentage 
• Mortgage interest or rent for the home paid during the year 
• Home utility costs paid during the year 
• Maintenance on whole house  
• Maintenance on just the office area 
• Your general home office expenses paid during the year 

There are two main ways to determine the amount of your home office tax deduction--the long and complicated way, or the easy and short way. 

How do I calculate the home office deduction the harder way?

The traditional longer method is a more detailed approach. First, you must know the total square footage of your home and the square footage of the office. You also need to know the cost of operating your home overall and the cost of operating the individual office. For example, annual mortgage payments, utilities, and other home costs, plus any office expenses such as supplies equipment may all need to be tracked and itemized. 

How do I calculate the home office deduction on my tax return the easy way?

The IRS offers a simplified option to calculate your home office write-off called the “safe harbor method,” which allows a standard 5-dollar-per-square-foot deduction of your dedicated workspace. This deduction is limited to no more than $1,500 and is calculated by multiplying the square footage used exclusively for the office, by 5 dollars. 

Safe harbor method

• Standard $5-per-square-foot deduction
• Not to exceed 300 square feet
• Maximum deduction: $1,500

If you use this simplified option, just know that you cannot deduct any other expenses related to the home, or the home office, such as utilities. But you can deduct business expenses unrelated to the use of the home, such as the costs for your computer, office supplies, paper, etc. There is also no depreciation allowed when using the simplified method, which also means no depreciation recapture when the home is sold. 

My employer pays for my home office expenses. Is this money taxed?

If your employer pays your home office expenses, you will be in one of two situations. Either your employer is paying you an additional amount of income outside of your regular pay, or they're reimbursing you for your expenses. These are very different situations when it comes to your taxes. Currently, there is no deduction for an office-in-home if you are an employee so the payment is taxable income to you.  

Two key takeaways

• Additional income cannot be deducted
• Reimbursed expenses are considered non-taxable income

Working from home is complicated and you can also miss a tax break if you're not watching closely.

So, know the rules. If you have more questions about your employment changes and working from home, reach out to your local Jackson Hewitt Tax Pro for help.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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