If you run a home-based business or are an entrepreneur with side employment from home, you may be able to take advantage of lucrative home office deductions.
The tax credit is not given to everyone who works from home, though. Under current federal tax law, employees who work remotely cannot write off their home office expenses.
You must utilize at least a portion of your home frequently and exclusively for one of the following to be eligible for a deduction:
- either your primary location of the business
- a location used for regular business meetings with clients, customers, or patients.
Additionally, you can be eligible for deductions if you keep a separate building, like a garage, where you keep supplies or equipment needed only for your business.
Notably, “regular and exclusive” use necessitates regular use of a certain, distinguishable area of your house for business purposes. Incidental or sporadic personal use, though, won’t always disqualify you.
For tax implications when you sell your house and questions regarding writing off home office expenses, consult a certified Herdon accounting firm.
What if you are a company employee who works remotely from home? Before, if the arrangement was made for the convenience of their employer, people who itemized deductions may deduct home offices as a miscellaneous expense.
However, the Tax Cuts and Jobs Act eliminated the ability to deduct such expenses for 2018 through 2025. Therefore, at the moment, working from home has no tax benefits for employees. However, provided they match the conditions of the tax legislation, self-employed people may still be eligible.
Expenses both direct and indirect
If you meet the requirements, you can deduct all of your direct costs as well as an amount that depends on how much of your house is used for business use.
Examples of indirect costs are:
- The cost of a mortgage
- taxes on real estate
- Utilities (electric, gas, and water),
- cleaning, upkeep, and repairs to the exterior
- Using IRS tables, depreciation or rent
Figuring out your deduction
The area of your home office usually determines the proportion of business use. The applicable amount, for instance, is 10% if your home is 3,000 square feet and you utilize a room that is 300 square feet as your office. Alternatively, you may use any other fair approach to calculate this proportion, such as one that considers the number of rooms in the house that are of comparable size.