Chances are that you’re reading this from home. With social distancing encouraged due to the COVID-19 pandemic – and in states like mine, actually mandatory – many taxpayers are working from home. And it’s not just those of us with routine desk jobs: even celebrities like Jimmy Fallon and Savannah Guthrie have been staying home to work.
But before you rush out to outfit your home office with network-ready quality video cams and cushy leather chairs, you may want to consider whether they are tax-deductible. In past years, if you were an employee who worked from home, you could deduct your home office expenses as a miscellaneous itemized deduction on line 21 of Schedule A. Easy peasy.
That’s no longer the rule. As a result of the Tax Cuts And Jobs Act (TCJA), for the tax years 2018 through 2025, you cannot deduct home office expenses if you are an employee.
That’s an important distinction. Employees who work from home can no longer claim the home office deduction, but the TCJA did not change the home office expense rules for self-employed persons and independent contractors. If you are self-employed – even as a gig worker – you can continue to deduct qualifying home office expenses. Typically, you would report the home office deduction on federal form 8829, Expenses for Business Use of Your Home, which is filed along with your Schedule C, Profit or Loss From Your Business, on your 1040.
To qualify for the home office deduction, the part of your home attributable to business must be “exclusively and regularly for your trade or business” and that part of your home must be your principal place of business; a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business; or a separate structure used in connection with your trade or business. In other words, to be deductible, your home office must be your actual office and not just at your home for convenience. And more importantly, if you use part of your home as a workspace, it must be space that is used solely for business.
My office is in a central location – with two doors – but it’s clearly space used for business. The set-up, from my laptops to my tax reference books, is designed to allow me to research, write, and record. It’s solely my space: My daughter even painted a sign for my door to let my kiddos know when it’s okay to venture inside to avoid a replay of Professor Robert E. Kelly’s interview (my husband, while a good guy, hardly possesses the ninja-like kid-retrieval skills that Kelly’s wife, Jung-a Kim, does).
However, what if instead of my desk, I used my dining room table as my desk AND my eating space? Can I claim that space as my home office? Nope. Not sole use and thus, not tax-deductible. See the difference?
But please don’t misunderstand: a dedicated space doesn’t mean that you have to have a separate room. You can have a dedicated space – a table in the corner that’s just used for your office work – in a room used for other things. You just need to calculate the space and figure the deduction appropriately.
For years, the rule was that you must figure the amount of space attributable to your business and compare it with the total and use that amount to figure the deduction. So, if your home office space is 200 square feet and your home is 2000 square feet, you would claim 10% (200/2000) of your home-related expenses (insurance, taxes, mortgage interest, etc.) as a home office deduction. That’s still an option.
However, since the 2013 tax year, there’s also a simplified option for the home office deduction. With the simplified option, you may claim a standard deduction of $5 per square foot of home used for business up to a maximum of 300 square feet. Using the same numbers as above, if your home office is 200 square feet, the simplified option for the home office deduction would allow you to claim $1,000 (200 square feet x $5) as a home office deduction.
Again, neither of those options is on the table for employees for 2020. As a result of the Tax Cuts and Jobs Act (TCJA), for the tax years 2018 through 2025, you cannot deduct home office expenses if you are an employee. It’s one of several changes on Schedule A (read about other changes here). Those changes were intended to be absorbed or mitigated by the doubling of the standard deduction.
A lot of taxpayers didn’t mind so much when the law changed in 2017, but now they do. If this bugs you, don’t shoot the messenger. Instead, contact your Congressional official:
The loss of the home office deduction for employees has some taxpayers wondering whether it makes sense to quit their day jobs and become self-employed. That’s an individual decision, but if you’re focusing simply on the home office piece, the numbers probably don’t support that kind of shift. For more to consider when it comes to business-related decisions in light of tax reform, check out this article.
That said, don’t let the tax tail wag the dog. Even if you can’t deduct expenses on your tax return to make your home office space better, that doesn’t mean you shouldn’t do it. If you want the lumbar pillow because it makes you more comfortable – and you can afford it – buy it. And if you want a better monitor at your home because your laptop screen is just too small – and you can afford it – buy it. Some of us could be working at home for a while. Let’s all make the best of it!