What expenses can I deduct if I work from home?

Deductible Home Office Expenses for Self-Employed Individuals

Self-employed individuals who use part of their home for business may be eligible to deduct certain home office expenses on their tax return. Here are the key points regarding deductible home office expenses:

Qualification Criteria

- Exclusive and Regular Use: The space must be used exclusively and regularly for conducting business activities.

- Principal Place of Business: The home office must be the principal place of business, or a place where the taxpayer meets with clients or customers, or a separate structure used for business.

Deductible Expenses

- Mortgage Interest: A portion of mortgage interest may be deductible.

- Insurance: A portion of home insurance costs may be deductible.

- Utilities: Costs for utilities such as electricity and water can be partially deducted.

- Repairs and Maintenance: Expenses for repairs and maintenance that directly affect the business space are deductible.

- Depreciation: Depreciation on the home used for business purposes can be claimed.

- Rent: If the taxpayer is a renter, a portion of the rent may be deductible.

Calculation Methods

- Simplified Option: A standard deduction of $5 per square foot of the home used for business, up to a maximum of 300 square feet, resulting in a maximum deduction of $1,500.

- Regular Method: Deductions are based on the percentage of the home devoted to business use, with actual expenses determined and records maintained.

Limitations and Conditions

- Deduction Limit: The deduction cannot exceed the gross income from the business use of the home minus business expenses.

- Carryover: If using the regular method, the amount in excess of the gross income limitation may be carried over to the next year.

Additional Information

- Form 8829: Expenses for business use of the home are calculated on Form 8829 for those using the regular method.

- Recordkeeping: Taxpayers must keep records of expenses if using the regular method.

- No Double Benefit: Expenses that are deducted for business use of the home cannot also be claimed as itemized deductions on Schedule A.

Choosing a Method

- Taxpayers may choose either the simplified method or the regular method for any taxable year.

- The choice is made by using the selected method on the timely filed, original federal income tax return for that year.

- Once chosen, the method cannot be changed for that tax year.

Depreciation and Sale of Home

- If depreciation is claimed using the regular method, there may be a recapture of depreciation upon the sale of the home.

- If the simplified method is used, there is no depreciation deduction or later recapture of depreciation.

Self-employed individuals should carefully consider their options and choose the method that best suits their situation. It's important to comply with all IRS requirements and maintain accurate records to substantiate the deduction.

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Sources:

How small business owners can deduct their home office from their taxes ... 2024-08-03

Self-employed individuals tax center | Internal Revenue Service 2024-08-03

Topic no. 509, Business use of home | Internal Revenue Service 2024-08-03

Office in the Home | Internal Revenue Service 2024-08-02

Publication 587 (2023), Business Use of Your Home 2024-08-03

Publication 463 (2023), Travel, Gift, and Car Expenses | Internal Revenue Service 2024-08-04

Independent contractor (self-employed) or employee? 2024-08-03

Guide to Business Expense Resources | Internal Revenue Service 2024-08-01

Simplified option for home office deduction | Internal Revenue Service 2024-08-03

Small Businesses Self-Employed | Internal Revenue Service 2024-08-03