Home Office Deduction: Can You Claim This Tax Break If You Worked from Home Last Year?
If you worked from home last year, whether you can claim the home office deduction on your tax return may depend on your employment status.
Like millions of other Americans, you may have worked from home a lot last year because Covid forced your office to close. Sure, you saved money on commuting costs, work clothes and lunches, but there are other unreimbursed expenses that drained your wallet. For instance, you probably had to pay for printer paper and ink, note pads, and other office supplies. Plus, your electric and other utility bills were likely higher since you were at home all day. And maybe you had to upgrade your Wi-Fi, too. Wouldn't it be nice if you could claim a tax deduction for your home office expenses on your 2021 tax return?
Well, maybe you can. Some people can deduct their business-related expenses, and there's something called the "home office deduction" that lets you write off expenses for the business use of your home. Whether or not you can claim these tax breaks depends on your employment status.
Employees Are Out of Luck
If you're an employee working from home last year, I'm sorry to say that you can't deduct any of your related expenses on the tax return you must file this year.
Before 2018, you could claim an itemized deduction for unreimbursed business expenses, including expenses for the business use of part of your home if they exceeded 2% of your adjusted gross income. However, this deduction was eliminated by the 2017 tax reform law.
Self-Employed People Cash In (Maybe)
If you were self-employed last year, you may be in luck. Self-employed people can deduct office expenses on Schedule C (Form 1040) whether they work from home or not. This write-off covers office supplies, postage, computers, printers, and all the other ordinary and necessary stuff you need to run an office.
Plus, the home office deduction may also be available if you were self-employed in 2021 — if you can satisfy all the requirements. This tax break covers expenses for the business use of your home, including mortgage interest, rent, insurance, utilities, repairs, and depreciation. It doesn't matter what type of home you have, either — single family, townhouse, apartment, condo, mobile home, or even a boat. You can also claim the deduction if you worked in an outbuilding on your property, such as an unattached garage, studio, barn, or greenhouse.
The key to the home office deduction is to use part of your home "regularly and exclusively" as your principal place of business. If you only worked from home for part of the year, you can only claim the deduction for the period that you can satisfy the "regularly and exclusively" requirements.
"Regular use" means you use a specific area of your home (e.g., a room or other separately identifiable space) for business on a regular basis. Incidental or occasional use of the space for business doesn't count.
"Exclusive use" means you use a specific area of your home only for your trade or business. The space doesn't have to be marked off by a permanent partition. You can't claim the home office deduction if you use the space for both business and personal purposes. However, the exclusive use requirement doesn't apply if you use part of your home:
- For the storage of inventory or product samples; or
- As a daycare facility.
The space must also be used:
- As your principal place of business for your trade or business;
- To meet or deal with your patients, clients, or customers in the normal course of your trade or business; or
- In connection with your trade or business if it's a separate structure that's not attached to your home.
(See IRS Publication 587 for more information about these and other requirements for the home office deduction.)
If you qualify, there are two ways to calculate the home office deduction for your 2021 tax return. Under the "actual expense" method, you essentially multiply the expenses of operating your home by the percentage of your home devoted to business use. If you worked from home for part of the year, only include expenses incurred during that time. Under the "simplified" method, you deduct $5 for every square foot of space in your home used for a qualified business purpose. Again, you can only claim the deduction for the time you worked from home. For example, if you have a 300-square-foot home office (the maximum size allowed for this method), and you worked from home last year for three months (25% of the year), your deduction is $375 ((300 x $5) x 0.25).
The deduction is claimed on Line 30 of Schedule C (Form 1040). If you used your home for more than one business, file a separate Schedule C for each business. Don't combine your deductions for each business on a single Schedule C.
If you use the actual expense method to calculate the tax break, also complete Form 8829 and file it with the rest of your 2021 tax return. If you used more than one home for business last year, you can file a Form 8829 for each home or use the simplified method for one home and Form 8829 others. Combine all amounts calculated using the simplified method and amounts calculated using Form 8829, and then enter the total on Line 30 of the Schedule C you're filing for the business.
Employees with a Side Gig?
If you were an employee at a "regular" job last year, but you also had your own side hustle, you can claim deductions for business expenses and the home office deduction for your own business — if you meet all the requirements. Being an employee doesn't mean you can't also claim the deductions you're entitled to as a self-employed person.