Mar 16, 2021
Submitted by Julia Tsoy
165 Passaic Avenue, Suite 411, Fairfield, NJ
Many people are working from home during the COVID-19 pandemic. If you’re self-employed, you might be able to claim deductions for home office expenses against your business income—as long as you run your business from your home or perform certain functions there. There are two ways to claim this tax break: the actual expenses method and the simplified method.
How do I know if I qualify?
Generally speaking, if part of your home is utilized as your principal place of business “regularly and exclusively,” you qualify for home office deductions.
However, you may still qualify for these deductions even if your home isn’t your principal place of business. Home office deductions are possible if:
- You meet in-person with patients, clients, or customers on your property, or
- A storage area in your home or any free-standing structure on the premises is used exclusively and regularly for your business
Deducting actual expenses
Deducting actual expenses is one method many taxpayers use when claiming home office deductions. Such deductible expenses may include:
- Direct expenses, such as money spent painting or carpeting a space used exclusively for business
- A proportionate share of indirect expenses, such as mortgage interest, property taxes, rent, repairs, utilities, and insurance
However, keeping track of actual expenses can be time-consuming and requires careful organization.
The simplified method
Fortunately, there’s a simpler method: Taxpayers may deduct $5 for each square foot of home office space, up to a maximum of $1,500.
Because of this maximum total, the simplified method can be less valuable for larger home office spaces. But even when it comes to small spaces, some taxpayers qualify for bigger deductions if they use the actual expense method—meaning that tracking your actual expenses is worth it in some cases.
What if I want to switch methods?
You don’t have to commit to a particular method when claiming home office deductions. If, for example, you choose to use the actual expense method on your 2020 return, you can still use the simplified method when you file your 2021 return the year after, and even return to the actual expense method for 2022.
Selling a home with a deductible home office
If your home contains (or has contained) a home office, and you choose to sell your home at a profit, there may be implications for your taxes. We can explain them to you.
Also note that the amount you can deduct for your home office is subject to limitations based on how much of your income is attributable to your use of the office, and other rules and limitations may apply. However, if there are any home office expenses that can’t be deducted due to these limitations, it’s possible to carry over and deduct these expenses in later years.
Do I qualify as an employee?
Unfortunately, the business use of home office deductions for employees was suspended from 2018 through 2025 through the Tax Cuts and Jobs Act. This means that if you receive a paycheck or a W-2 exclusively from your employer, you aren’t eligible for deductions—even if you’ve been working from home.
Contact us today—we can help you determine if you’re eligible for home office deductions and advise you on how to proceed.