It’s my annual Taxes from A to Z series! This time, it’s Tax Cuts and Jobs Act (TCJA) style. If you’re wondering whether you can claim home office expenses or whether to deduct a capital loss under the new law, you won’t want to miss a single letter.
H is for Home Office Deduction.
Do you work from home? In past years, if you were an employee who worked from home, you could deduct your home office expenses as a miscellaneous itemized deduction on 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.
The most common way to calculate the home office expense used to be to pro-rate: simply figure the amount of space attributable to your business and compare it 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.
Since the 2013 tax year, taxpayers could opt 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 of 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.
That’s no longer the rule. As a result of the TCJA, for the tax years 2018 through 2025, you cannot deduct home office expenses if you are an employee.
The TCJA did not change the home office expense 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 1040.
The loss of the home office deduction has some employees wondering if it’s time to make a switch 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.
For more Taxes From A To ZTM 2019, check out the rest of the series: