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Can you claim a home office tax deduction?

What are the advantages of a home office?

What is a home office

A home office is a dedicated room or workspace in someone’s home that they use for office work or general business purposes. 

Suppose you are self-employed or work remotely part-time or full-time for an employer. In that case, you may choose to create a space in your home to use as office space or for business activities.

Can you claim a home office tax deduction?

Some jurisdictions, including the UK and US, allow taxpayers to claim a home office on their tax return and deduct certain home office expenses when filing income taxes. 

To claim a home office tax deduction, you must meet one of the following criteria:

  1. The home office is the principal place of business for exclusive use on a regular basis

  2. The home office is the place where the business owner meets with clients and customers as part of the normal business day

  3. The work-from-home office is a separate structure on the property but is not attached to the house or residence

You can calculate the deduction depending on the size of your home office space as a percentage of the total house or residence. For example, if your total house size is 2,400 square feet and your home office is 240 square feet, 10% of the total house is considered used for business. That would allow you to deduct 10% of the household’s costs for electricity, real estate taxes, mortgage interest, insurance, repairs, etc., as business expenses.

Alternatively, you can take a flat deduction at the beginning of the tax year.

In the US, the internal revenue service (IRS) home office rules help you determine whether you qualify for a tax deduction based on the business use of your home. You can use IRS form 8829 to figure the allowable expenses for business use of your home on Schedule C (Form 1040) and any carryover to next year of amounts not deductible this year.

The home office deduction is available to both homeowners and renters. 

What are the advantages of a home office?

Following the COVID-19 pandemic and the increase in remote working and telecommuting, home offices have risen in popularity.

Convenience: Many people prefer to work at home as it provides greater flexibility and work-life balance since you do not have to commute to an office building and can fit your work schedule around your home life.

Reduced business expenses: Many large and small businesses are enabling workers to work from home so they can close or scale down their main offices.

Renting and furnishing a professional office space is extremely costly, especially in large metropolitan areas like New York, London, and Sydney.

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