With the rise in remote work over the past few years, many individuals wonder if they can claim a home office tax deduction. If you’ve been covering expenses like printer supplies, utilities, or other work-related costs, the idea of a tax break may seem appealing. But whether you qualify depends on your employment situation and how you use your home office.
Home office tax deduction for employees
Unfortunately, “regular” employees who work from home cannot deduct home office expenses on their federal tax return. Previously, unreimbursed business expenses could be itemized if they exceeded 2% of adjusted gross income, but this deduction was suspended and is not scheduled to return until 2026.
Home office tax deduction for the self-employed
If you’re self-employed, the story is different. You can generally deduct business expenses – including those for a home office – on Schedule C (Form 1040). These deductions may include costs for office supplies, postage and equipment, as well as expenses related to the business use of your home, such as rent, utilities, insurance, and repairs.
This tax break for the self-employed is available to those who meet specific requirements:
- The space must be used regularly and exclusively for business purposes.
- It must be your principal place of business, where you meet clients or customers, or a separate structure on your property used for business.
For instance, you may qualify if you work in a dedicated area of your home, like a spare bedroom or unattached garage. However, spaces used for both personal and business purposes don’t meet the “exclusive use” requirement unless they fall under certain exceptions, such as inventory storage or daycare services.
See IRS Publication 587 for more information about the requirements for the home office deduction.
How to calculate the deduction
The home office deduction can be calculated in one of two ways:
- “Actual expense” method. Calculate the percentage of your home used for business and apply it to the total expenses for that portion of the home. If you worked from home for only part of the year, adjust your calculation accordingly.
- Simplified method. Deduct $5 per square foot of your home office, up to 300 square feet. For example, if your office is 300 square feet and you worked from home for three months, your deduction would be $375.
It’s important to note that using the simplified method means you cannot depreciate the business-use portion of your home.
When using the actual expense method you can depreciate the business-use portion of your home, but by doing so you may owe additional taxes if you sell your home in the future. Currently you can exclude gains on the sale of your primary residence of up to $250,000 for individuals and $500,000 for couples. By using the actual expense method to calculate a home office deduction your home becomes partly a business asset and therefore may not qualify for the full exemption amount.
Filing the deduction
To claim the deduction:
- Use Line 30 on Schedule C (Form 1040).
- For the actual expense method, also complete Form 8829.
- If you operate more than one business, file a separate Schedule C for each, and combine deductions if using both calculation methods.
Employees with a side business
If you’re an employee but also run a side business, you may still qualify for the home office deduction for your self-employed income, provided you meet all requirements.
While the home office deduction isn’t available to everyone, it’s a valuable tool for eligible self-employed individuals to help lower their tax bills. Minimizing taxes is essential to protecting your lifestyle, longevity, and legacy. That’s why Mercer Advisors makes proactive tax strategy an integral part of our financial planning processing. Speak to your advisor to learn more about tax planning and preparation services. If you’re not a client, let’s talk.
