Claiming the home office deduction is a smart way to make certain expenses fully or partially deductible. But there are strict rules to qualify. Find out who can claim the often-overlooked home office deduction, which expenses are deductible, and how to figure out the amount you can deduct. Maxing out legal tax breaks helps you keep more of your money so you reach your financial goals faster.
More people are working from home these days, either as a remote employee or as their own boss. No matter if you have plans for a major tech startup, want to earn more by freelancing on the side, or work at home for an employer, there are ways to shelter more of your money from taxes.
Claiming the home office deduction is a smart way to make certain expenses, such as rent, mortgage interest, utilities, and insurance, partially deductible—but there are strict rules to qualify. It’s a terrific tax break because you get to claim a portion of many different types of expenses that aren’t deductible for the average homeowner or renter.
In this post, I’ll explain who can claim the often-overlooked home office deduction, which expenses are deductible, and how to figure out the amount you can deduct. It’s important to maximize every legal tax break so you keep more of your money and reach your financial goals faster.
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Who Can Claim the Home Office Tax Deduction?
You’re qualified to claim the home office deduction if you use any part of your residence for business. This is the case whether your venture is full- or part-time or if you rent or own your home. It applies to all types of properties, such as a single-family home, condo, apartment, co-op, mobile home, or even a live-aboard boat.
According to the IRS and Forbes, an estimated 26 million Americans have home offices, but only 3.4 million claim a deduction for them. That’s a lot of potential tax savings going down the drain.
Here are the two basic requirements you and your office must meet to be eligible for the deduction:
- Regular and exclusive use – requires you to use a certain part of your home on a consistent basis for business. For instance, you might choose to work from a guest room, a detached garage, or any identifiable space. In other words, you can’t just say that because you work from the couch that your entire living area is used for business. If you live in a small place, like a studio apartment, you could have a desk that qualifies as your office. You don’t need walls to separate your office, but it should be a distinct area within your home. The only exception to this “exclusive use” rule is when you use part of your home for business storage purposes or as a daycare facility. In these two situations, you can deduct the entire spaces used, even if they are also used for personal purposes.
- Principal place of your business – requires you to show that your home is a main place where you conduct business. However, it doesn’t have to be the only place you work or meet customers. For instance, you might also work at a coffee shop, a co-working space, or meet clients in their home.
If you’re a W2 employee who works from home, there’s an additional requirement: the business use of your home must be for the convenience of your employer, not for your convenience. This might be the case if your company doesn’t have a local office or doesn’t have enough space for you.
If you’re a W2 employee who works from home, there’s an additional requirement: the business use of your home must be for the convenience of your employer, not for your convenience.
If your company does provide an office where you accomplish your primary work responsibilities, but they allow you to telecommute occasionally or you choose to work from home in the evenings or weekends, you don’t qualify.
As an employee, you’d only be eligible to claim a home office deduction if your employer requires you to work from home or to meet with customers, clients, or patients, at your residence on a regular basis. You must itemize your deductions on Form 1040, Schedule A to claim expenses for the business use of your home as an employee.