Guide to the Home Office Deduction For Taxes
The home office deduction is valuable, accessible -- and sadly misunderstood tax write-off.
As a 1099 contractor or self-employed worker, operating business from home has a major perk - can claim a portion of all home-related expenses as a write off on your taxes! As long as you work from a dedicated workstation and it is your principal place of business, you can claim business use of your home or home-related expenses as (partial) tax write offs at tax time.
Misled by rumors of increased likelihood of audit, many hard-working freelancers fail to claim what’s rightfully theirs when they track their business expenses.
A Breakdown Of The Home Office Deduction
Adding to the confusion, the 2017 Tax Cuts and Jobs Act eliminated the home office deduction for W-2 employees, making some folks believe that it no longer applies to freelancers either. Let’s clear that up. Home office expenses can still be a great tax saver for self-employed freelancers.
What Is Included In The IRS' Home Office Deductions?
If you work from home as a freelancer, 1099 contractor, or self-employed, then you most likely qualify. You don’t need a dedicated mahogany-clad room with a fancy placard on the door to label an area as business use of your home either.
The IRS publication defines a home office as a portion of your home used exclusively and regularly as your main place of work. Let’s clarify this.
Doesn’t have to be a separate exclusive use room -- a desk counts
A home office doesn’t need to be a separate room or area of your home-- for many of us living in an urban area, that’s not really an option anyway. A desk in your bedroom or living room that is only business use, counts. But don’t claim the couch or your bed as a home office -- those pieces of furniture are clearly not used “exclusively” for business activities.
Should be used for business use (at least) weekly
You don’t need to be a social recluse who never leaves the house in order to claim the home office deduction. You’re welcome to work from coffee shops and visit client sites and meetings, as long as you use your home workstation weekly.
For example, if you’re a real estate broker constantly running between open houses and answering emails on your phone, you can still claim a home office, since you use it for computer work every week for business use. However, as a delivery driver you often have little need for computer work, and using your workstation a few times a year to organize expenses doesn’t count as regular use.
Doesn’t have to be used continuously throughout the year
With the global Coronavirus or Covid-19 pandemic and mandatory quarantine in place in most states, almost every freelancer in 2020 should claim a home office for at least part of the year. After all, your home was probably your principal place of business. For example, if you normally work from a co-working space but started working from home in April, then you can claim the home office deduction from your self-employment income beginning in April or when the coronavirus stay home started.
Can’t be claimed alongside office space expenses
Unfortunately, you can’t claim studio lease or co-working space fees alongside a home office. You’re free to claim a home office one month and then a coworking membership the next, but not both in the same month.
What home office expenses can you write off?
Having a home office allows you to write off a percentage of all home-related expenses: rent, utilities, and even some types of home consumables. This can be extremely valuable business deductions-- even worth up to thousands of dollars, depending on how much you pay for housing.
To calculate this percentage, you’ll need to estimate the size of your office/part of your home or workstation and divide it by the total square footage of your home. For example, a medium-sized desk and some surrounding area for a desk chair is about 10 ft x 8 ft. If you have a 500 sq foot home, that means you can write off (80 sq ft) / (500 sq ft) = 16% of all your home expenses.
Great, now let’s figure out what a home office allows you to write off for your small business!
With the cost of rent these days, this tax break is HUGE! A percentage of your monthly rent payment is tax deductible for every month you claim a home office. With the cost of urban rent these days, this write-off can be extremely valuable!
If you pay for renter or homeowner insurance, write off a percentage of the monthly bill thanks to your home office. You can write off the cost of insurance that covers the business part of your home. An example of these business expenses would be property insurance or renters insurance.
Things like electricity, gas, water, and trash removal are usually personal expenses and cannot be written off. Although they may feel like indirect expenses, you can now write off a portion of these costs if you have a home office.
🧻 Home essentials
Home essentials like cleaning supplies, soap, and, yes, even toilet paper are partially tax deductible. Think about it this way: if you weren’t working from home, you wouldn’t need to use up nearly as much of your toilet paper for personal use.
🪑 Home office furniture
The cost of a desk, chair, monitor, and other furniture for your workstation is fully tax deductible. You don’t need to take a percentage of these expenses, since they’re used exclusively for business activities.
Do you have a cleaning lady that cleans your home? Even if she cleans the entire home (including your workspace), it counts! A portion of this expense can be written off and should not be missed.
🌐 Wifi bill
This is a must. It would be hard to do any kind of modern work from home without wifi. Don’t forget to claim it on your taxes! Wifi is certainly a necessity for working out of your home. Claim your monthly Comcast bill on taxes!
💸 Property taxes
Like the mortgage interest write off, a portion of your real estate taxes can also be included! This amount will typically also be found on your 1098 form. If it is not, just be sure to keep copies of your property tax bills.
This one is a lot less common these days, but if you have a landline, a portion of that can be written off. Perhaps you also have a second dedicated business use line, you may write off that entire amount as actual expenses.
🛠️ Home repairs and maintenance
Some common repairs are painting, patching walls and floors, roof repairs, wallpapering, gutter repairs, fixing leaks, broken windows. Keep in mind, if these repairs are done exclusively in your home office, you can write off the entire amount! If they are done to the full home, like a roof repair, then you’ll get a partial write off.
🛡️ Security System
If you have a security system that protects your home like ADP or cameras for monitoring like Ring or Nest, be sure to include those as well.
↘️ Home depreciation, property taxes, mortgage interest
If you own a home, this will be another hefty write off for you. Instead of rent, you can write off a percentage of your home depreciation, property taxes, and mortgage interest. Include the total amount spent on your home mortgage interest for the year and your software will calculate your portion of the write off! This info will be found on your 1098 form from your bank. Don’t worry about crunching the numbers yourself -- great tax filing software like Keeper Tax does the recordkeeping and math for you, at tax time. All you will have to know is the amount you bought your place for and when you purchased it -- our software will take care of the rest. You just plug in the numbers for your tax return. If you are still uncertain, contact a tax professional.
What about the “simplified” home office deduction?
In the 2013 tax year, the IRS started offering a simplified option to calculate home office tax savings apart from the regular method. In short, rather than getting to deduct a percentage of all your home-related expenses, you can choose to claim a standard deduction of $5 per square foot. Unfortunately for small business owners, the deducting per square feet option tends to be significantly less valuable (tax nerds should check out our simplified method vs actual scenario-level breakdown).