Many Americans moved into home offices during the pandemic. Some returned to offices when restrictions were lifted, but many stayed in their homes. Some found their joy in their dedicated spaces and didn’t feel the need to return to work. But instead, chose to remain in their home offices permanently.
There is a tax deduction for that.
If you use part of your home for your business, you may qualify for the deduction for business use of your home. And you may also be eligible to claim certain expenses, as well.
How do I qualify for the home office deduction?
In order to qualify for the home office deduction, you have to meet two basic requirements – you must use a space in your home exclusively for business. And you have to use the space on a regular basis.
So, your couch doesn’t count. But if you use a bedroom as your home office, and your home office is the primary place you run your business you can take a deduction for that room.
Both the dedicated space and the regular and exclusive use requirements must be met in order to claim the deduction.
What does the term “home” mean?
For the home office deduction, you can dedicate space inside your home, which includes a house, apartment, condominium, mobile home, boat, or similar property. But you can also use a structure on the property that’s not attached to your home.
For example, you can claim the home office deduction if you conduct your business in a detached garage, shed, studio, barn, or greenhouse. As long as the structure is exclusively used for your business, you should be able to claim it.
The best part is it doesn’t matter if you own your home or rent. Both homeowners and renters can claim the home office deduction on their taxes. Small business owners can also deduct some expenses, like mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent. The home office deduction is a great way to save on your tax bill as a small business owner.
Home daycare owners can also qualify for a home office deduction, but there are additional restrictions. However, if you are trying to claim any part of your home that’s used exclusively as a hotel, motel, inn or similar business, that will not qualify for this deduction.
How do I file for the home office deduction?
Once you’ve determined your qualification, you can use Form 8829 to file your home office deduction.
Then, to calculate your expenses related to your home office, you can choose one of two methods – the regular method or the simplified option.
The simplified method uses a rate of $5 a square foot for the deduction. The maximum size for this option is 300 square feet and the maximum deduction under this method is $1,500.
The regular method is a little more complicated. Deductions for a home office are based on the percentage of the home dedicated to business use. Those who use a whole room or part of a room for doing business have to figure out the percentage of the home used for business activities with respect to the whole house to determine indirect expenses, like utilities. Direct expenses are deducted in full.
If you’re a small business owner doing business out of your home, the home office deduction will save you a lot of money on your tax bill. Don’t miss out on your opportunity to take advantage of this deduction on your taxes this year.