RT Snyder Jr.

Working from home is common for many small business owners. Maybe you handle the books from a spare bedroom, run your business from a dedicated office, or use a separate shop or building on your property to handle the administrative side of the business. 

But simply doing some work at home doesn't automatically make your home expenses deductible. The home office deduction can be a useful tax benefit for qualifying business owners, but specific rules apply to who can claim it and which expenses qualify. 

Does Your Home Office Qualify? 

Generally, you must use part of your home regularly and exclusively for business. 

The word exclusively is important. If you have a spare bedroom that is used only as your office, it may qualify. If you work at the kitchen table during the day and your family uses the same table for dinner at night, it generally doesn't meet the exclusive-use requirement. 

Your home must also generally be your principal place of business. However, that doesn't necessarily mean all of your work has to happen there. 

For example, you may spend most of your day working at job sites, meeting customers, or working elsewhere. If you regularly use your home office for administrative or management activities and don't have another fixed location where you perform those duties, your home office may still qualify. 

A qualifying workspace doesn't necessarily have to be inside your house, either. A separate structure on your property, such as a garage, studio, barn, or shop, may qualify if you use it regularly and exclusively for business. 

What About Employees Working From Home? 

One common misconception is that anyone who works from home can claim the deduction. 

For federal tax purposes, the home office deduction is generally available to qualifying self-employed taxpayers and business owners, not employees simply because they work remotely. 

If you have W-2 wages but also operate a separate self-employed business, however, a home office used for that separate business may qualify if you meet the requirements. 

What Can You Deduct? 

If your home office qualifies, certain costs associated with maintaining your home may become deductible business expenses. 

Depending on your situation, these could include a portion of: 

• Mortgage interest or rent 

• Real estate taxes 

• Homeowners or renters insurance 

• Utilities 

• Repairs and maintenance 

• Depreciation 

How much you can deduct depends in part on which calculation method you use. 

Simplified or Regular Method? 

You can calculate the home office deduction in two ways. 

The simplified method allows a deduction of $5 per square foot of qualifying business space, up to 300 square feet. That puts the maximum deduction at $1,500. 

For example, a 200-square-foot qualifying office could provide a $1,000 deduction under the simplified method. 

One advantage is exactly what the name suggests: simplicity. You don't have to calculate the business portion of every household expense, and you don't claim depreciation on your home for the years you use this method. 

The regular method uses the actual expenses associated with your home. You determine the percentage of your home devoted to business and generally use that percentage to allocate qualifying indirect expenses. Expenses that apply directly to the business space may be treated differently. 

The regular method requires more recordkeeping, but depending on your expenses and workspace size, it may result in a larger deduction. 

Other differences are worth considering, too. For example, the regular method may allow certain deductions limited by business income to be carried forward, while the simplified method generally does not. The regular method can also involve depreciation and potential depreciation recapture when you eventually sell the home. 

Because of these differences, the easiest method isn't necessarily the best method for every taxpayer. 

Keep Good Records 

If you're claiming a home office deduction, documentation matters. 

Track the size of your business space and the total square footage of your home. If you're using the regular method, you'll also want records supporting expenses such as utilities, insurance, repairs, rent, mortgage interest, and other qualifying costs. 

It can also help to document how you use the space, especially if your business takes you away from home for much of the day. 

A Deduction Worth Asking About 

If you're self-employed and regularly conduct business from home, don't automatically assume your workspace does, or doesn't, qualify. 

A contractor who spends most of the day at job sites, a farmer who keeps records from a home office, and a consultant working from a spare bedroom may have very different businesses. Still, each could have qualifying business use of their home. 

The important questions are how the space is used, how regularly it's used, and whether it meets the tax requirements. 

If you're unsure whether your workspace qualifies or which calculation method makes the most sense, talk with your tax professional. A quick conversation and good records throughout the year can help make sure you're taking the deductions available to you without claiming expenses that don't qualify.