I HAVE to work from home, can I deduct anything?
Are you stuck working from home due to COVID-19?
Make sure you are aware of the tax breaks you can use for that space in your home. Unfortunately, the big tax changes that happened at the end of 2017, took away the benefits for most people. However, if you are self-employed, this might be a huge help for you.
In order to qualify to claim a deduction for a home office, or as the IRS calls it ‘Business Use of Your Home’ you need to meet two criteria first:
- This space must be your main place of business; AND
- The space must be used regularly and EXCLUSIVELY!
The first criteria, especially considering the current circumstances, is easy to meet. If you do not have an office away from home or your work is such that it is primarily done at a client location, you typically meet that criteria. There are other times you will still meet the criteria, so make sure you ask a qualified tax professional.
The second criteria is a little bit harder to meet. Using your office space regularly just means that you use that space when you are doing work on a consistent basis. The part that really gets people is the exclusive use part. In order to qualify for this deduction, the space designated as your ‘office’ can NOT be used for anything else. So, if you only have one computer used by the entire family, you cannot put it in the office and meet the exclusive use requirement. Also, you cannot sit in a public part of the house because you want to be around the family and consider it a home office.
So, you have met both requirements and you want to know what you can deduct. Well, there are two options:
- Simplified Method
- Regular Method
The Simplified Method, which came about in 2014, is truly just what it sounds like. The IRS will allow you up to 300 square feet at $5/square foot for a maximum $1,500 deduction. There are many benefits to this method in its simplicity but also potentially comes with a reduced deduction.
The Regular Method takes a little bit more work but might be worth it for a higher deduction. With this method, you must gather documents to show your total household expenses. Qualified expenses include mortgage interest, insurance, utilities, repairs and depreciation. Additionally, you must figure out the size of your office space and entire house.
Regardless of the method you choose, it can potentially save you hundreds of dollars in taxes for the year. If you have any questions, give us a call at 719-728-2829.