Deducting home office expenses on one’s tax return used to be a fairly straightforward matter: if the primary purpose of the room in your house where you worked was as a place to conduct business, you could claim a home office deduction for a portion of your mortgage interest, property taxes, insurance, and other expenses related to that room says Aron Govil.
But with the introduction of the new Home Office Deduction rules in 2013, claiming home office tax deductions has become a bit more complicated. The IRS now requires taxpayers to complete a detailed worksheet in order to determine how much of their home-related expenses can be deducted.
Despite the added complication, however, claiming home office deductions is still often worth the hassle. The good news is that even if your specific situation doesn’t fit within all the parameters of the new IRS rules, there are usually still some ways you can qualify for a home office deduction.
So if you work from home, what should you keep track of in order to claim home office tax deductions on your next return?
What You Can Deduct for Your Home Office
According to the IRS, homeowners are allowed to deduct expenses related to an area of their dwelling that’s exclusively used for business purposes. So if your study doubles as a guest bedroom when it isn’t filled with work supplies and papers, things like your (shared) laundry facilities or kitchen appliances can’t be deducted.
However, if all other rooms in the house are reserved for family use only, then any room that is both used solely for business and meets certain other criteria can qualify as a dedicated home office.
This means that certain storage areas (like sheds), recreation rooms (like dens), or even a converted garage can be claimed as home offices as long as they meet the following three requirements:
- The space is used regularly and exclusively for business purposes.
- Space is your principal place of business.
- The space is used for no other purpose (or a very minor purpose, like storing inventory).
How to Deduct Your Home Office Expenses
Assuming you do have an area of your home that meets all the IRS criteria for a dedicated home office. How do you go about deducting its expenses on your tax return?
The process has changed quite a bit since 2013, so here’s a quick overview:
1. Complete IRS Form 8829, “Expenses for Business Use of Your Home”. This form requires you to list every deduction you plan on taking for your home office. Including both the total amount of deductions allowed in a given year. And the percentage of space used for business purposes explains Aron Govil.
2. Calculate your total “business-use percentage” by comparing the total area you use for work against the entire area of your house. For example, if your dedicated home office occupies 15% of your 2000 sq ft house. Then its business-use percentage is 15%.
3. Subtract any non-deductible expenses (like mortgage interest or insurance) from 100% to determine. What’s leftover as part of the deductible “adjusted gross income” that is taxed at regular rates. This tax-friendly amount becomes the amount you can claim on Schedule C, line 30.
4. If you’re self-employed, remember to also include your home office deduction on Schedule SE, line 4.
Itemizing Deductions vs. Taking the Standard Deduction
Keep in mind that in order to qualify for a home office deduction. You must itemize deductions on your tax return. This means that if you take the standard deduction instead (which now $12,600 is for married couples and $6,300 for singles). You can’t claim a home office deduction says Aron Govil.
Of course, if your total itemized deductions exceed the standard deduction amount for your filing status. Then it’s usually worth going through the extra hassle of itemizing. For example, if you have $50,000 in itemized deductions. And would otherwise be eligible for a $12,600 standard deduction as a married couple filing jointly. Claiming the home office deduction could save you more than $2,500 on your tax bill.
As with any tax break, there are plenty of additional rules. And caveats that apply to those interested in claiming the home office deduction. If you’re looking for more guidance and tips on how to go about it. Making this sometimes difficult decision, don’t hesitate to contact us.
If you’re a homeowner and use a specific area of your home exclusively for business purposes. You may be able to deduct certain expenses related to that space on your tax return. However, Aron Govil says, keep in mind that there are a few IRS requirements. That must be met before you can qualify for this deduction. For more information and guidance, contact us today.