More people worked from home in 2020 than in any previous time due to the COVID-19 pandemic. If you’re one of them, you might be asking, “Can I claim the home office deduction on my 2020 tax return?”
Don’t get too excited if you work for someone other than yourself, because the short answer is: Only if you’re self-employed. Employees can no longer claim home office expenses, and even the self-employed have to follow strict rules to claim a deduction.
What Can Be Written Off?
If you qualify, you can deduct the “direct expenses” of the home office. This includes the costs of painting or repairing the home office and depreciation deductions for furniture and fixtures used there.
You can also deduct the “indirect” expenses of maintaining the office. This includes the allocable share of utility costs, depreciation and insurance for your home, as well as a portion of mortgage interest, real estate taxes and casualty losses. (The share you can write off is typically the percentage of space your office takes up in your home.)
In addition, if your home office is your “principal place of business,” the eligible costs of traveling between your home office and other work locations are deductible transportation expenses, rather than nondeductible commuting costs.
How Can I Determine if I Can Claim my Home Office Deduction
You can deduct your expenses if you meet any of these three tests:
1. Principal place of business. You’re entitled to deductions if you use your home office, exclusively and regularly, as your principal place of business. Your home office is your principal place of business if it satisfies one of two tests. You satisfy the “management or administrative activities test” if you use your home office for administrative or management activities of your business, and you meet certain other requirements. You meet the “relative importance test” if your home office is the most important place where you conduct business, compared with all the other locations where you conduct that business.
2. Meeting place. You’re entitled to home office deductions if you use your home office, exclusively and regularly, to meet or deal with patients, clients or customers. The patients, clients or customers must physically come to the office.
3. Separate structure. You’re entitled to home office deductions for a home office, used exclusively and regularly for business, that’s located in a separate unattached structure on the same property as your home. For example, this could be in an unattached garage, artist’s studio or workshop.
You may also be able to deduct the expenses of certain storage space for storing inventory or product samples. If you’re in the business of selling products at retail or wholesale, and if your home is your sole fixed business location, you can deduct home expenses allocable to space that you use to store inventory or product samples.
Is There More to Consider?
Of course there is! The amount of home office deductions for self-employed taxpayers is subject to various limitations, and proper planning is key to claiming the maximum deduction for your home office expenses. Contact us if you’d like to discuss your situation; we can help you claim the deductions you can, and advise you on changes you can make to claim them in the future too.