Of all the tax breaks available, the home office tax deduction is among the murkiest and most misunderstood. And the passage of the 2017 Tax Cuts and Jobs Act has made things even more complicated.
So if you work at home, what should you do? Allow us to explain exactly who can take the home office tax deduction these days—and who can’t—as well as how to do it right. Here’s what you need to know before filing this year.
Who can claim the home office tax deduction?
We’ve got some good news and bad news. The bad news: In years past, if you worked for a company (and received a W-2) but worked from home occasionally or full-time, you could claim a home office tax deduction. But not anymore.
“There is a major change to the home office deduction: It is no longer available for company employees,” says Bill Abel, tax manager at Sensiba San Filippo in Boulder, CO. “This has many remote employees frustrated.”
But there is a ray of hope for these W-2 telecommuters. You could see if your employer will allow you to change your work status from an employee to an independent contractor (also discuss this option with a tax adviser), which would allow you to continue taking this deduction. Consider the pros and cons of such a move beyond just the tax benefits, however.
Another small loophole also exists, if your employer is willing to play along: Just ask your employer to set up what’s called an “accountable plan.”
For example, instead of being paid $100,000, your employer could pay you $95,000 in wages plus a $5,000 home office expense reimbursement, making your salary the same—while saving you more on taxes.
The good news: If you’re one of the 40 million or so people out there who are self-employed—from business owners to bloggers—you can still continue to take this deduction.
How to take a home office deduction if you’re self-employed
If you’re self-employed, you have every right to take a home office tax deduction, but that’s not to say it’s easy.
In a nutshell, you’ll be writing off part of your home expenses on your tax return by separating out the costs associated with using your home for personal purposes (making pancakes) and business (answering work email).
To claim the deduction, an area of your home has to be designated as your principal place of business, and—the clincher—used exclusively for work. Everything in that designated space needs to be only for work purposes.