7 Guidelines for Taking a Work-From-House Tax Deduction

If you happen to’re one of many hundreds of thousands of people that labored remotely in 2022, you might be questioning whether or not which means a candy deduction at tax time. Maintain up, although: The IRS has strict guidelines about taking the house workplace deduction — and so they modified drastically below the Tax Cuts and Jobs Act, which handed in late 2017.

7 Important Guidelines for Claiming a Work-From-House Tax Deduction

Fascinated by claiming a house workplace deduction in your tax return? Observe these tricks to keep away from elevating any eyebrows on the IRS while you file your 2022 tax return, which is due on April 18, 2023.

1. You’ll be able to’t declare it for those who’re an everyday worker, even when your organization requires you to earn a living from home.

If you happen to’re employed by an organization and also you earn a living from home, you’ll be able to’t deduct residence workplace house out of your taxes. This is applicable whether or not you’re a everlasting distant employee or in case your workplace nonetheless hasn’t returned to in-person operations due to COVID-19. The rule of thumb is that for those who’re a W-2 worker, you’re not eligible for a work-from-home tax deduction.

This wasn’t all the time the case, although. The Tax Cuts and Jobs Act suspended the deduction for miscellaneous unreimbursed worker enterprise bills, which allowed you to assert a house workplace for those who labored from residence for the comfort of your employer, offered that you just itemized your tax deductions. The legislation almost doubled the usual deduction. Because of this, many individuals who as soon as saved cash by itemizing now have a decrease tax invoice once they take the usual deduction.

2. You probably have an everyday job however you even have self-employment revenue, you’ll be able to qualify.

If you happen to’re self-employed — whether or not you personal a enterprise otherwise you’re a freelancer, gig employee or impartial contractor — you in all probability can take the deduction, even for those who’re additionally a full-time worker of an organization you don’t personal. It doesn’t matter for those who earn a living from home at that full-time job or work from an workplace, so long as you meet the opposite standards that we’ll focus on shortly.

You’re allowed to deduct solely the gross revenue you earn from self-employment, although. Which means for those who earned $1,000 out of your aspect hustle plus a $50,000 wage out of your common job that you just do remotely, $1,000 is essentially the most you’ll be able to deduct.

3. It must be a separate house that you just use completely for enterprise.

The IRS requires that you’ve got an area that you just use “completely and frequently” for enterprise functions. You probably have an additional bed room and you employ it solely as your workplace house, you’re allowed to deduct the house — and that house alone. So if your own home is 1,000 sq. toes and the house workplace is 200 sq. toes, you’re allowed to deduct 20% of your own home bills.

But when that residence workplace additionally doubles as a visitor bed room, it wouldn’t qualify. Identical goes for for those who’re utilizing that house to do your day job. The IRS takes the phrase “completely” fairly significantly right here when it says you could use the house completely for your enterprise functions.

To keep away from operating afoul of the foundations, be cautious about what you retain in your house workplace. Photographs, posters and different decorations are effective. However for those who transfer your gaming console, train gear or a TV into your workplace, that’s in all probability not. Even mixing skilled books with private books might technically cross the road.

A man works from home while watching his daughter.
Getty Pictures

4. You don’t want a separate room.

There must be a transparent division between your own home workplace house and your private house. That doesn’t imply you need to have a complete room that you just use as an workplace to take the deduction, although. Suppose you’ve a desk space in that further bed room. You’ll be able to nonetheless declare a portion of the room so long as there’s a marker between your workplace house and the remainder of the room.

Professional Tip

A straightforward solution to separate your own home workplace out of your private house, courtesy of TurboTax Intuit: Mark it with duct tape.

5. The house must be your principal office.

To deduct your own home workplace, it must be your principal office. However that doesn’t imply you need to conduct all your enterprise actions within the house. If you happen to’re a handyman and also you receives a commission to sort things at different individuals’s homes, however you deal with the majority of your paperwork, billing and telephone calls in your house workplace, that’s allowed.

There are some exceptions for those who function a day care heart otherwise you retailer stock. If both of those eventualities apply, try the IRS rules.

6. Mortgage and lease aren’t the one bills you’ll be able to deduct. 

If you happen to use 20% of your own home as an workplace, you’ll be able to deduct 20% of your mortgage or lease. However that’s not all you’ll be able to deduct. You’re additionally allowed to deduct bills like actual property taxes, householders insurance coverage and utilities, although on this instance, you’d be allowed to deduct solely 20% of any of those bills.

Watch out right here, although. You’ll be able to deduct bills just for the a part of the house you employ for enterprise functions. So utilizing the instance above, for those who pay somebody to mow your garden otherwise you’re portray your kitchen, you don’t get to deduct 20% of the bills.

You’ll additionally have to account for depreciation for those who personal the house. That may get sophisticated. Think about consulting with a tax skilled on this state of affairs. If you happen to promote your own home for a revenue, you’ll owe capital positive aspects taxes on the depreciation. Everytime you’re claiming deductions, it’s important to maintain good information so you’ll be able to present them to the IRS if mandatory.

If you happen to don’t need to cope with intensive record-keeping or deducting depreciation, the IRS gives a simplified possibility: You’ll be able to take a deduction of $5 per sq. foot, as much as a most of 300 sq. toes. This technique will in all probability end in a smaller deduction, however it’s simpler than the common technique.

7. Calm down. You in all probability gained’t get audited for those who comply with the foundations.

The house workplace deduction has a infamous popularity as an audit set off, however it’s principally undeserved. Deducting your own home workplace bills is completely authorized, offered that you just comply with the IRS pointers. A extra doubtless audit set off: You deduct an enormous quantity of bills relative to the revenue you report, no matter whether or not they’re associated to a house workplace.

It’s important to be prepared in case you might be audited, although. Ensure you can present a replica of your mortgage or lease, insurance coverage insurance policies, tax information, utility payments, and many others., so you’ll be able to show your deductions had been warranted. You’ll additionally need to take footage and be ready to supply a diagram of your setup to the IRS if mandatory.

As all the time, seek the advice of with a tax adviser or think about using tax prep software program like TurboTax or H&R Block for those who’re undecided whether or not the expense you’re deducting is allowable. It’s greatest to shell out somewhat more money now to keep away from the headache of an audit later.

Robin Hartill is a licensed monetary planner and a senior author at The Penny Hoarder. She writes the Expensive Penny private finance recommendation column. Ship your difficult cash inquiries to [email protected].