Today it is becoming more common to work from home. But, just because you have a home office space does not mean you can deduct expenses associated with it.

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 is also a guest bedroom or your children do their homework there, you cannot deduct the expenses associated with that space.

A valuable break

If you are eligible, the home office deduction can be a valuable tax break. You may be able to deduct a portion of your mortgage interest, property taxes, insurance, utilities, and certain other expenses, as well as the depreciation allowable to the office space.

Or you can take the simpler ‘safe harbor’ deduction in lieu of calculating, allocating, and substantiating actual expenses. The safe harbor deduction is capped at $1,500 per year, based on five dollars per square foot up to a maximum of 300 square feet.

More considerations

For employees, home office expenses are a miscellaneous itemized deduction. This means you will enjoy a tax benefit only if these expenses plus your other miscellaneous itemized expenses exceed two percent of your adjusted gross income (AGI).

If, however, you are self-employed, you can deduct eligible home office expenses against your self-employment income.

Finally, 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, contact us for more information.