Can my daughter take a home office deduction if she doesn't pay rent or utilities for her small business

[safetyprincess]

My daughter runs an Etsy shop (3D printed resin figures) and did contractor digital designs for another company out of our house. She will file a Schedule C for both businesses. I'm helping her with her taxes. Per Turbotax, she can claim a home office deduction. It would be easier to claim it on her digital design business as she uses the guest room to set up her computer and do her thing. For the 3D resin figures, she uses the butler's pantry to set up her 3D printer and part of the dining room for her inventory and we didn't want to go through all that again.

Originally, we used the simplified method and used the percentage of the guest room/whole house. It gave her a $365 deduction. Yay! However, when we got the PA state return part, it said you can't do simplify method. You have to do actual expenses. She lives with us and doesn't pay any household expenses like rent, utilities, etc. I put in the expenses for mortgage & utilities like electric, garbage, cable, etc. Turbotax calculated that she can take a $1100 deduction for a home office. 

Can she claim a home office deduction then? She did do all her digital design work in the guest room. Can she take a federal simple method deduction but no PA home office deduction? Don't think Turbotax let me do that - it said I had to go back to the Federal return & change it to actual expenses.

Also, she started a job with benefits in December in the same home office and no longer does the contractor digital design work. Can she take a home office deduction for the real job? All the employees work from home, there is no "office". We didn't bother putting it in because it was only a month (started in December) but hope to do it for the whole year 2022.

[PatriciaV]

Yes, you may be able to claim the home office deduction if your office is:

• Used regularly and exclusively for your business, and
• Is your principal place of business (both conditions must apply).

There is no requirement to own your home or pay rent & utilities.

If your State requires actual expenses, you have the option to change your entries in the Federal section. The simplified method is a year-by-year election; it means you can choose each year to use or not to use it. If you choose to stay with the simplified method for Federal taxes, you would need to adjust the State return to eliminate the deduction for home office expenses.

Employees working from home can no longer take the home office deduction, no matter the reason. This has been in place since 2018, when the Tax Cuts and Jobs Act was signed into law. Prior to that, employees who worked from home at the convenience of their employer were allowed to deduct home office expenses under the 2% rule.

[Carl]

I am of the impression that others responding here are not seeing the big picture in the same manner I see it. But here's my take on it.

Since your daughter is the sole owner of the business and she does not own the property (you the parent own it) and does not pay rent or pay for any utilities for the use of the space by her business, A home office deduction can't be claimed by your daughter, and she can't claim any expenses. She would have to actually pay those expenses either from the business income or her personal taxable income in order to claim/deduct them as a business expense.

[safetyprincess]

That was my thought as well. Especially if she were to elect the "actual expenses" method because she doesn't pay any of those expenses.