The home office tax deduction is one of the most misunderstood aspects of filing taxes; in fact, some tax professionals say those who claim this deduction run a higher risk of being audited. So does that mean you shouldn’t take the deduction? To the contrary.
If you meet the qualifications, you are absolutely entitled to claim the home office deduction — and you may even save money on your taxes by doing so. The trick is to make sure you meet the qualifications, claim only the deductions that are allowed, and also keep excellent documentation of your expenses.
As always, if you are unsure about your tax situation, you should consult a tax attorney or other tax professional, who should be able to clarify things for you.
Requirements for Claiming the Home Office Tax Deduction
According to the Internal Revenue Service (IRS), in order to claim the home office tax deduction, you must use part of your home “exclusively and regularly”:
- As your principal place of business, or
- As a place to meet or deal with patients, clients or customers in the normal course of your business, or
- In any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.
“Exclusively” is a high threshold that requires you use a space in the home *only* for business; even sending personal emails from your work space can remove your ability to claim the home office tax deduction. The exceptions to this requirement are daycare centers run out of the home as well as instances in which a person stores inventory or products in the home, but there are nuances to exceptions too, so pay careful attention to IRS requirements.
A “home,” according to the IRS, can be a house, condo, apartment, etc. You do not need to own the space in order to claim the home office tax deduction.
If you are an employee of someone else, however, you have additional requirements that must be met, including that you are using the space at the convenience of your employer.
Types of Items That May Be Deducted If You Qualify
A percentage of the following items may be deductible if you qualify for the home office tax deduction:
- Mortgage interest (cannot be claimed under itemized deductions as well, however)
- Property taxes or rental payments
- Utilities
- Homeowners’ or Renter’s insurance
- Depreciation of the home if you own it
- Home repairs and maintenance
This is just a brief description of the most important aspects of the home office tax deduction; for further information, especially regarding your specific situation, it is recommended that you consult a tax attorney or other tax professional.