The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions, including the deduction for unreimbursed employee business expenses (expenses ordinary and necessary to your profession, but not reimbursed by your employer). Under the old law, some employees who worked from home could claim a deduction for home office expenses not reimbursed by their employer. Under the new law, this deduction is suspended for tax years beginning after December 31, 2017 and ending before January 1, 2026.
However, many self-employed individuals can still take a home office deduction on their tax returns. If you use your home office (or separate structure on your property) exclusively and on a regular (consistent) basis as either your principal place of business or to physically meet clients, patients or customers, you may qualify for the home office deduction.
There are two methods that can be used to calculate the deduction: the regular method and the simplified method. Under the regular method, you may deduct direct and indirect expenses related to your home office. Direct expenses are expenses only relating to your home office, such as painting the office or making repairs exclusively to the office. Indirect expenses are expenses required to maintain your entire home. Examples include real estate taxes, mortgage interest, insurance, utilities, and general repairs.
Indirect expenses are based on the percentage of your home used for your home office. The advantage of using this method is that the limit on the deduction for home office expenses is generally higher than the limit for the simplified method. The main disadvantage of the regular method is that it requires substantially more time, including detailed recordkeeping and documentation to support the expenses claimed.
Under the simplified method, the deduction is calculated by multiplying the IRS allowed rate (currently $5) by the area of your home office, up to 300 square feet, for a total maximum deduction of $1,500. No actual home office expenses may be deducted under this method. The advantage of this method is its simplicity; there is no need for detailed recordkeeping and documentation. The disadvantage is that the maximum allowed deduction under this method can often be substantially less than under the regular method.
For further information or questions about deducting home office expenses, please contact us.
By David Johnson, CPA