Work From Home Deductions

[justarabbitfortaxes]

I know that if you have a home office, that can be used as a deduction on your taxes, but what if you do not have a dedicated room, but instead just work out of your home? I do all of my work exclusively at home. It requires using the internet, computer, phone, electricity, and space within my home to store products and materials, as well as space to work. However, I do not have any one room that is solely for work, but rather my work is spread throughout the home. For example, I store materials in my closets, assemble products at my kitchen counters, do computer related work at the couch or desk, etc. Can I claim any of this as deductibles? If so, what and how? How is it calculated? Do I do individual percentages for each or is there like one general percentage for working out the home? Thanks for the help!

[Ruth C-L · Accepted solution]

Generally speaking, to qualify for the home office deduction, you must meet one of these criteria:

• Exclusive and regular use: You must use a portion of your house, apartment, condominium, mobile home, boat or similar structure for your business on a regular basis. This also includes structures on your property, such as an unattached studio, barn, greenhouse or garage. It doesn't include any part of a taxpayer's property used exclusively as a hotel, motel, inn, or similar business.
• Principal place of business: Your home office must be either the principal location of your business or a place where you regularly meet with customers or clients. Some exceptions to this rule include day care and storage facilities.

The biggest roadblock to qualifying for these deductions is that you must use a portion of your home exclusively and regularly for your business.

The law is clear and the IRS is serious about the exclusive-use requirement. Say you set aside a room in your home for a full-time business and you work in it ten hours a day, seven days a week. If you let your children use the office to do their homework, you violate the exclusive-use requirement and forfeit the chance for home office deductions.

The exclusive-use rule doesn't mean:

• You're forbidden to make a personal phone call from the office.
• You have to rush outside whenever a family member needs a moment of your time.

Although individual IRS auditors may be more or less strict on this point, some advisers say you meet the spirit of the exclusive-use test as long as personal activities invade the home office no more than they would be permitted to in an office building. The office can also be a section of a room and you can show that personal activities are excluded from the business section.

[Ruth C-L]

To calculate the home office deduction, you would use the following methodology:

Your home office business deductions are based on either the percentage of your home used for the business or a simplified square footage calculation.

The most exact way to calculate the business percentage of your house is to measure the square footage devoted to your home office as a percentage of the total area of your home. If the office measures 150 square feet, for example, and the total area of the house is 1,200 square feet, your business percentage would be 12.5%.

An easier calculation is acceptable if the rooms in your home are all about the same size. In that case, you can figure out the business percentage by dividing the number of rooms used in your business by the total number of rooms in the house.

[Opus 17]

A home office is not a deduction if you are a W-2 employee.  That deduction was eliminated for 2018-2025 tax years.

If you are self-employed, you can still deduct a home office, but not under the circumstance you describe.  A home office must be used regularly and exclusively for work.  Regular means your home is your regular place of business and you don't have another regular place of business such as a shop, store or office.  Exclusive means you must set aside a portion of your home exclusively for business and not use it for personal use.  There is an exception for de minimis use -- for example, if you have a spare bedroom that is used exclusively for work as an office, but you store personal items in the closet, the bedroom/office is not disqualified just because you occasionally use the room for the non-business purpose of accessing the closet.  But the general rule is the portion of the home must be used exclusively for work.

The only thing you describe that might qualify is if you use a closet exclusively for storing work items.

If you had space in your home that qualified, the deduction is calculated by adding up the square feet used for work and getting the percentage of the total square feet in the home.  If you use 10% of your home's square footage as office space, then 10% of your home expenses (utilities, insurance, mortgage, repairs, depreciation) would count as office space.  There is also a simplified option of claiming $5 per square foot as your deductible office expense, which saves you the trouble of saving all your receipts and bills for utilities, insurance and other expenses, and it saves you having to deal with depreciation.

[justarabbitfortaxes]

Thank you for the quick response! So if I am understanding correctly, my case does not allow me to use my home as a deduction even though all of my work is done and stored here because the space is simultaneously being used for personal things. For example, my counter is also where I prepare food and eat, my closets also contain my personal belongings, etc. But if I carved out a single corner with a table that was only used for business and nothing else, that would count? Thanks!

[Ruth C-L]

Yes, if you made a space that was just used for business (self-employment) you'd be able to take the home office deduction. I'd prorate by entering the square footage of that space as the business use portion. 

Ruth, CPA, Esq.

[MariaDG1]

     Hello @justarabbitfortaxes !  Thanks for participating in our event today.  This is a great question.  There is a lot of confusion out there about home office expenses.  

     One of the main criteria to claim a portion of your home as a business expense, is 'exclusive and regular use'.  This means you would need to set aside a certain area that is exclusively used for your business, and not personal use.  That being said, it doesn't require a specific boundary such as an entire room.  If you put a desk in the corner of your living room that you use for business, that would qualify.  If you add an island in your kitchen, or designate a side counter purely for business use, that would count too.  But unfortunately, using your couch for business sometimes and personal use sometimes is not going to qualify for a deduction.    

     However, you did mention storing business products in your closets.  This is one of the exceptions to the rule.  Storage of inventory, samples etc qualifies for a deduction.  If you occasionally store personal items in the same room/closet, that will not disqualify you from claiming a deduction for that area.  The easiest way to claim this deduction is called the simplified square footage method, which would allow you to deduct $5 per square foot. 

Here are some great resources on the subject: 

https://turbotax.intuit.com/tax-tips/small-business-taxes/the-home-office-deduction/L1RZyYxzv

https://www.irs.gov/taxtopics/tc509

https://www.irs.gov/publications/p587

    I hope that helps!  Feel free to reach back out if you need more clarification. 

[justarabbitfortaxes]

Thank you so much. You really cleared up the confusions around this and made it clear. I appreciate your time and help!

[justarabbitfortaxes]

I understand. Thanks for the help!