Buzz
As the pandemic surged, millions of workers transitioned to working from home. According to a Federal Reserve Bank of Dallas report, 35.2% of employees were working remotely in May, up from just 8.2% in February. If you’re working remotely now, you might be wondering if you qualify for a home office tax deduction—but understanding the eligibility criteria can be tricky. Here’s what you need to know.
Employee or Self-Employed?
The key to claiming the home office tax deduction depends on your employment status. The majority of full-time employees are W-2 workers. This means they receive pay through their company’s payroll system, with income, Social Security, and Medicare taxes deducted from each paycheck. Why this matters: W-2 employees are not able to deduct job-related expenses that aren’t reimbursed until 2025, according to the Tax Cut and Jobs Act.
If you're a contract worker, or a 1099 employee, you're considered self-employed and could be eligible for the home office tax deduction. You may also be able to deduct expenses like a portion of your internet bill, cell phone bill, or other business-related costs.
What counts as a home office
While claiming the home office deduction can be appealing, there are specific guidelines to follow. To qualify, your home office must meet the criteria of 'exclusive and regular use' and be your 'primary place of business,' according to the IRS. The space must be a dedicated area (not just your kitchen table) used solely for work. The IRS provides a few examples:
You may be able to deduct expenses for a detached structure, like a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure doesn’t need to be your primary place of business or where you meet clients or customers.
In general, home office deductions are based on the proportion of your home used for business purposes. If you use a full room or part of a room for work, you’ll need to calculate the percentage of your home dedicated to your business activities.
A detailed explanation of what qualifies for the home office tax deduction can be found in Publication 587. (Note that there isn’t a new version for 2020 yet.)
How to claim the home office deduction
To claim this deduction, you’ll use Form 8829, which is submitted along with Schedule C, the form for reporting business profit or loss. This allows you to claim the home office tax break even if you take the standard deduction and don’t itemize deductions on Form 1040. There are two ways to calculate the home office deduction: the simplified method or the regular method. If you’re unsure about the calculations—or whether your office qualifies—it’s advisable to consult a tax professional.
