Due to the pandemic, many Americans have been working from home, but only certain people will qualify to claim the home office deduction. This deduction allows qualifying taxpayers to deduct certain home expenses on their tax returns when they file their 2021 tax returns next year.
This blog post is a relevant article originally posted on Leasing News (LeasingNews.org)
Here are some things to help taxpayers understand the home office deduction and whether they can claim it:
- Employees are not eligible to claim the home office deduction.
- The home office deduction, reported on Form 8829, is available to both homeowners and renters.
- There are certain expenses taxpayers can deduct. They include mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent.
- Taxpayers must meet specific requirements to claim home expenses as a deduction. Even then, the deductible amount of these types of costs may be limited.
- The term “home” for purposes of this deduction:
- Includes a house, apartment, condominium, mobile home, boat, or similar property that provides basic living accommodations.
- A separate structure on the property. Such as an unattached garage, studio, barn, or greenhouse.
- Any portion of a home used exclusively as a hotel, motel, inn, or similar establishment does NOT qualify as a “home” and, therefore, does not qualify for a home office deduction.
Generally, there are two basic requirements for the taxpayer’s home to qualify as a deduction:
- There must be the exclusive use of a portion of the home for conducting business regularly. For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used regularly and exclusively in the business.
- The home must be the taxpayer’s principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the house, and there is no other location to perform these duties. Therefore, someone who runs business outside of their home and uses their home to conduct business may still qualify for a home office deduction.
- A portion of a home that is used exclusively for conducting business regularly but not used as the principal place of business will qualify for a home office deduction if either patient, clients, or customers are met in the home or there is a separate structure that is used exclusively for conducting business regularly.
Taxpayers who qualify may choose one of two methods to calculate their home office expense deduction:
- The simplified method consists of a rate of $5 per square foot for business use of the home, which is limited to a maximum size of 300 square feet and a maximum deduction of $1,500.
- Using the regular method whereby deductions for a home office are based on the percentage of the home devoted to business use. Any use of a whole room or part of a room for conducting their business will involve figuring out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full.
Publication 587, Business Use of Your Home, Including Use by Daycare Providers