Can You Write Off Your Home Office?

Getty Images

At a time when legions of Americans are suddenly working from home and may remain doing so for the indefinite future, this question has likely never been more important: Can you write off your home office?

The answer really depends on whether you're an independent contractor, running a business from home, or are an employee of a business or corporation owned by someone else. Here's a closer look at the dos and don'ts of writing off a home office on tax returns.

Only self-employed individuals can claim home office deductions

As part of the Tax Cuts and Jobs Act, the home office deduction for individuals who are employees of someone else's business was suspended from 2018 through the end of 2025. As a result, the deduction is currently only available to qualifying self-employed taxpayers, independent contractors, and those working in the gig economy, according to the IRS.

Translation: "If you are a W2 employee with no business entity [of your own] then there are no options to write off your home office," says CPA Mike Jesowshek, host of the Small Business Tax Savings podcast.

If you simply shifted to working from home because of the pandemic and are an employee of a business or corporation, the deduction is not available—as disappointing as that may be for countless people who are now working from home.

Requirements to claim the deduction for qualified individuals

For those who are indeed self-employed as an independent contractor or gig worker, the use of your home office must meet two basic requirements outlined by the IRS in order to qualify for the tax deduction. These requirements are that the taxpayer uses a portion of the home exclusively for conducting business on a regular basis and also that the home is the taxpayer's principal place of business.

RELATED: Commonly Overlooked Tax Deductions

The IRS guidance on this front goes on to explain that in order to claim the deduction, a taxpayer must use the space for one of the following:

• Exclusively and regularly as a place where patients, clients, or customers are met in the normal course of a trade or business.

• As a separate structure that's not attached to a home that is used exclusively and regularly in connection with a trade or business.

• As storage of inventory or product samples used in a trade or business of selling products at retail or wholesale.

"Just because you have an office in your spare bedroom does not mean that you automatically qualify for the deduction," says Tyler Davis, a CPA with Simplify LLC. "Taxpayers should research the rules of calculating the deduction and qualifying for the deduction."

It's also worth noting that the IRS definition of a "home" for the purpose of this deduction includes a house, apartment, condominium, mobile home, and even a boat.

When writing off home office space on annual tax returns, take photos to record your business use of the space. You might also keep a log of activities conducted in the space. This sort of documentation can be helpful in case you're ever audited, says Jesowshek.

Qualified expenses

For those who meet all the space usage requirements outlined above, a variety of expenses are eligible to be written off on your annual tax return.

"If part of the home is used exclusively and regularly for business purposes, a taxpayer may be able to deduct expenses such as mortgage interest, real estate taxes, insurance, utilities, repairs, and depreciation for the area used," says JustAnswer financial expert and CPA Angela Anderson.

The IRS list of expenses that can be deducted also includes rent, casualty losses, and maintenance. In general, a taxpayer may not deduct expenses for the parts of their home not used for business; for example, expenses for lawn care or painting a room not used for business.

How to claim the deduction

The IRS notes that taxpayers can either use the "regular" or "simplified method" to determine the appropriate home deduction for their annual tax returns.

The simplified method provides a rate of $5 per square foot for business use of the home with a maximum allowable deduction of $1,500. Here's what that means in practice:

"Under the simplified method you calculate the area of the home used for the trade or business," explains Rob Burnette, CEO, financial advisor and professional tax preparer for Ohio-based Outlook Financial Center. "The maximum area allowed is 300 square feet. Multiply that total area by $5. Using this example, the maximum deduction would be $1,500.

RELATED: 5 Home Improvements That Could Help You Save During Tax Season

Using the regular method may or may not yield a higher deduction on your income taxes, but the record keeping and calculations for this approach are extensive, continues Burnette.

"Home expenses must be segregated into [three categories] direct, indirect, or unrelated," Burnette explains. "Direct expenses are costs incurred for only the area of the home used for the trade or business."

Indirect expenses meanwhile are costs for keeping up and running the entire home (think phone bill, electricity bills, and more). A percentage of these types of expenses can be deducted based on business use square footage divided by total square footage of the home, says Burnette.

Finally, unrelated expenses apply to areas of the home not used for the trade or business purposes and these cannot be deducted.

The IRS provides guidance on all things related to home office deductions, including how to calculate the amount of such deductions using the regular and simplified formulas, in its Publication 587, which can be found here.

Maintain thorough records

While there is no one specific method that taxpayers must use to keep records, it is critical that you do maintain evidence of some sort substantiating the home office deductions you're claiming, says Jesowshek. It's also a good idea to refrain from going overboard on the deductions.

RELATED: How Remote Work Affects Your Taxes

"Claiming home office deductions is and has been a hot topic for the IRS for a while now," says Jesowshek. "Unless you want to get audited, if you claim the home office deduction, my suggestion would be to err on the side of caution rather than not. In other words, be conservative with your deductions. Do not inflate them."