Earlier this year, I decided that my home office deserved a facelift. I wanted something a little brighter, and the layout needed tweaking to accommodate interviews and (fingers crossed) an upcoming podcast.
In past years, all of the expenses that went into sprucing up my space – from paint to new furniture – would have been deductible as home office expenses on Schedule A of my income tax return. That’s because home office expenses were, until recently, deductible as a miscellaneous itemized deduction on line 21 of Schedule A.
To qualify for the home office deduction, the part of your home attributable to business must be “exclusively and regularly for your trade or business” and that part of your home must be your principal place of business; a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business; or a separate structure used in connection with your trade or business. In other words, to be deductible, your home office must be your actual office and not just at your home for convenience. And more importantly, if you use part of your home as a workspace, it must be space that is used solely for business.
My office is in a central location – with two doors – but it’s clearly space used for business. The set-up, from my laptops to my tax reference books, is designed to allow me to research, write and record. It’s solely my space: My daughter even painted a sign for my door to let my kiddos know when it’s okay to venture inside so as to avoid a replay of Professor Robert E. Kelly’s interview on the BBC last year, when his children wandered in during the live broadcast (my husband, while a good guy, hardly possesses the ninja-like kid-retrieval skills that Kelly’s wife, Jung-a Kim, does).
Since my home office was physically located in my home, for 2017, my deduction was figured by prorating the use. That was the rule for taxpayers for years: Figure the amount of space attributable to your business and compare with the total. For example, if your home office space is 200 square feet and your home is 2000 square feet, you would claim 10% (200/2000) of your home-related expenses (insurance, taxes, mortgage interest, etc.) as a home office deduction.
That was still the rule for 2017, but since the 2013 tax year, taxpayers could opt instead to use the simplified option for the home office deduction. With the simplified option, you could claim a standard deduction of $5 per square foot of home used for business up to a maximum 300 square feet. Using the same figures as above, if your home office is 200 square feet, the simplified option for the home office deduction would allow you to claim $1,000 (200 square feet x $5) as a home office deduction.
Neither of those options is on the table for employees for 2018. As a result of the Tax Cuts and Jobs Act (TCJA), for the tax years 2018 through 2025, you cannot deduct home office expenses if you are an employee. It’s one of several changes affecting Schedule A (read about other changes here). Those changes are expected to be absorbed or mitigated by the doubling of the standard deduction. For more on that – and 2018 tax rates – click here.
It’s worth noting that the TCJA did not change the rules for self-employed persons. If you are self-employed, you can continue to deduct qualifying home office expenses. Typically, you would report the home office deduction on federal form 8829, Expenses for Business Use of Your Home, which is filed along with your Schedule C, Profit or Loss From Your Business, on your personal 1040 (note that each of links is to the 2017 version of the form and will download as a pdf).
The loss of the home office deduction for employees has some taxpayers wondering whether it makes sense to quit their jobs and become self-employed. That’s an individual decision, but if you’re focusing simply on the home office piece, the numbers probably don’t support that kind of shift. For more to consider when it comes to business-related decisions in light of tax reform, check out this article.