Working from home has become commonplace. However, just because you have a home office space does not mean you can deduct expenses associated with it, and for 2018, even fewer taxpayers will be eligible for a home office deduction.
Changes under the Tax Cuts and Jobs Act
For employees, home office expenses are a miscellaneous itemized deduction. For 2017, this means you will enjoy a tax benefit only if these expenses plus your other miscellaneous itemized expenses (such as unreimbursed work-related travel, certain professional fees, and investment expenses) exceed two percent of your adjusted gross income.
For 2018 through 2025, this means that, if you are an employee, you will not be able to deduct any home office expenses. Why? The Tax Cuts and Jobs Act (TCJA) suspends miscellaneous itemized deductions subject to the two percent floor for this period.
If, however, you are self-employed, you can deduct eligible home office expenses against your self-employment income. Therefore, the deduction will still be available to you for 2018 through 2025.
Other eligibility requirements
If you are an employee, your use of your home office must be for your employer’s convenience, not just your own. If you are self-employed, generally your home office must be your principal place of business, though there are exceptions.
Whether you are an employee or self-employed, the space must be used regularly (not just occasionally) and exclusively for business purposes. If, for example, your home office also is a guest bedroom or your children do their homework there, you cannot deduct the expenses associated with that space.
Two deduction options
If you are eligible, the home office deduction can be a valuable tax break. You have two options for the deduction:
- Deduct a portion of your mortgage interest, property taxes, insurance, utilities, and certain other expenses as well as the depreciation allocable to the office space. This requires calculating, allocating, and substantiating actual expenses.
- Take the ‘safe harbor’ deduction. Only one simple calculation is necessary: $5.00 times the number of square feet of the office space. The safe harbor deduction is capped at $1,500 per year, based on a maximum of 300 square feet.
More rules & limits
Be aware that we have covered only a few of the rules and limits here. If you think you may be eligible for the home office deduction on your 2017 return or would like to know if there is anything additional you need to do to be eligible on your 2018 return, contact us.