Let’s Review: The Home Office Deduction in 2020

The coronavirus forced many corporations and small businesses to move non-essential employees to work from home indefinitely.

Some companies like Google have extended its work-from-home policy through the end of 2020. Facebook has implemented a work-from-home policy forever.

Likewise, self-employed workers might be using their homes more frequently to operate instead of Starbucks or shared work spaces.

Now is a great time to review the Home Office Deduction and assess whether or not you will qualify.

What is the Home Office Deduction?

The Home Office Deduction allows self-employed individuals to deduct expenses for using all or part of their residence regularly for business. It is available to both owners and renters.

What about W-2 employees? Do they qualify?

Unfortunately, W-2 employee do not qualify ☹ The Home Office Deduction can only be claimed by self-employed workers.

Are there any exceptions because of coronavirus?

Unfortunately, no exceptions have been made or announced that changes the current eligibility.

Under the Tax and Jobs Cuts Act (TCJA), W-2 employees can no longer deduct any home office expenses from 2018 through 2025.

Before the TCJA took effect on January 1, 2018, W-2 employees were eligible for a tax deduction if their home expenses plus other miscellaneous itemized expenses exceeded 2% of their adjusted gross income (unreimbursed work-related travel, certain professional fees and investment expenses).

But the TCJA suspended miscellaneous itemized deductions subject to that 2% floor for this period of time.

I meet the self-employment requirement. What are the other eligibility requirements?

If you are self-employed, generally your home office must be your principal place of business, though there are exceptions.

The space must be used regularly (not just occasionally) and exclusively for business purposes.

If, for example, your home office is also a guest bedroom or your children do their homework there, you cannot deduct the expenses associated with that space.

You have 2 options to calculate the deduction:

1. Simplified Method

  • Only one simple calculation is necessary
  • $5 × the number of square feet of the office space
  • Capped at $1,500 per year based on a maximum of 300 square feet

2. Actual Method
  • Deduct a portion of your mortgage interest, property taxes, insurance, utilities, and certain other expenses, as well as the depreciation allocable to the office space
  • Requires calculating, allocating, and substantiating actual expenses

Final Thoughts

If you think you may be eligible for the home office deduction and would like to know if there is anything additional you need to do to be eligible on your return, contact us.

Additionally, if you are a W-2 employee and want to review what other deductions you might be eligible for, please reach out!

Edited by Kaitlin Boyer

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