Working from home has become commonplace, but just because you have a home office space doesn’t mean you can deduct expenses associated with it. For 2018, even fewer taxpayers will be eligible for a home office deduction as a result of the Tax Cut and Jobs Act (TCJA).
Changes Under the TCJA
For employees, home office expenses are a miscellaneous itemized deduction. For 2017, this means you will receive a tax benefit only if these expenses plus your other miscellaneous itemized expenses (such as unreimbursed work-related travel, certain professional fees, and investment expenses) exceed 2% of your adjusted gross income.
For 2018 through 2025, the TCJA suspends miscellaneous itemized deductions subject to the 2% floor. This means that if you’re an employee, you won’t be able to deduct any home office expenses.
If, however, you are self-employed, you can deduct eligible home office expenses against your self-employment income. Therefore, the deduction will still be available to you.
Other Eligibility Requirements
If you’re an employee, your use of your home office must be for your employer’s convenience, not just your own. If you’re self-employed, generally your home office must be your principal place of business.
Whether you’re an employee or self-employed, the space must be used regularly (not just occasionally) and exclusively for business purposes. If, for example, your home office is also a guest bedroom or your children do their homework there, you can’t deduct the expenses associated with that space.
Two Deduction Options
If you are eligible, the home office deduction can be a valuable tax break. You have two options for the deduction:
- Deduct a portion of your mortgage interest, property taxes, insurance, utilities, and certain other expenses, as well as the depreciation allocable to the office space. This requires calculating, allocating and substantiating actual expenses. The allocation of these costs will reduce both your taxable income and self-employment income.
- Take the “safe harbor” deduction. Only one simple calculation is necessary: $5 × the number of square feet of the office space. The safe harbor deduction is capped at $1,500 per year, based on a maximum of 300 square feet.
More Rules and Limits
Be aware that we’ve covered only a few of the rules and limits here. If you think you may be eligible for the home office deduction on your 2017 return or would like to know if there’s anything additional you need to do to be eligible on your 2018 return, please reach out to your local Blue & Co. tax advisor..