Working from home has its perks. Not only can you skip the commute, but you also might be eligible for the 2019 home office deduction. With this deduction, you can account your home office expenses on your tax return. Deductions for these expenses can save you a bundle, if you meet the tax law qualifications.
Under the Tax Cuts and Jobs Act, employees can no longer claim the home office deduction. However, are you running a business from your home or are otherwise self-employed and use part of your home for business purposes? If so, than the home office deduction may still be available to you.
If you’re a homeowner and use part of your home for business purposes, you may qualify to deduct a portion of actual expenses. A few examples include mortgage, property taxes, utilities, repairs and insurance, as well as depreciation. Or you might be able to claim the simplified home office tax deduction of $5 per square foot, up to 300 square feet ($1,500).
To qualify for home office deductions, you must be using part of your home “regularly and exclusively” as your principal place of business. This classification is as follows:
1. Regular use. You use a specific area of your home for business on a regular basis. Incidental or occasional business use does not count as regular use.
2. Exclusive use. You use a specific area of your home only for business. There is no requirement to physically section off the space. But you don’t meet the requirements if you are using the area for both business and personal purposes. For example, a home office that you also use as a guest bedroom does not qualify for exclusive use.
Your home office will qualify as your principal place of business if you:
1). Use the space exclusively and regularly for administrative or management activities of your business.
2) Don’t have another fixed location where you conduct substantial administrative or management activities.
Examples of activities that meet this requirement include:
If your home isn’t your principal place of business, you may still be able to deduct home office expenses if you physically meet with patients, clients or customers on the premises. The use of your home must be substantial and integral to the business conducted.
Alternatively, you may be able to claim the home office deduction if you have a storage area in your home. A separate free-standing structure (such as a studio, workshop, garage or barn) also counts. However, you must be using the storage area or free-standing structure exclusively and regularly for your business.
Be aware that claiming expenses on your tax return for a home office has long been a red flag for an IRS audit, since many people don’t qualify. But don’t be afraid to take a home office deduction if you qualify for it. You just need to pay close attention to the rules to ensure that you’re eligible — and make sure that your record-keeping is complete.
BONUS: Did you know the IRS uses Audit Techniques Guides to help IRS examiners see small business audit requirements? Best of all, your business can use the same guides to gain insight!
The 2019 home office deduction can provide a valuable tax-saving opportunity for business owners and other self-employed taxpayers who work from home. Keep in mind that, when you sell your house, there can be tax implications if you’ve claimed a home office. Contact us if you have questions or aren’t sure how to proceed in your situation.