In the Tax Tip 2022-10, the IRS listed some of the rules and tips to deduct your home office. Note that to claim the home office deduction, taxpayers generally must exclusively and regularly use part of their home or a separate structure on their property as their primary place of business. In some cases, if you are filling out a tax return for the business, Schedule C, 1065, or others, some of those business expenses can be included in the business form (no need to fill out this form). Also, the IRS might put more attention on this form for review and audit purposes as it might be use aggressively by some taxpayers claiming deductions that they are not entitled to.
This is a list included in the IRS Tax Tip 2022-10:
- Employees (w2) are not entitled to deductions on their home office expenses, but some of these expenses could reimbursed by their employer.
- The home office deduction is calculated in Form 8829
- There are certain expenses taxpayers can deduct. These may include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.
- Note that for the IRS, the term “home” for purposes of this deduction: Includes a house, apartment, condominium, mobile home, boat or similar property. Also includes structures on the property. These are places like an unattached garage, studio, barn or greenhouse. Doesn’t include any part of the taxpayer’s property used exclusively as a hotel, motel, inn or similar business.
- Generally, there are two basic requirements for the taxpayer’s home to qualify as a deduction:
- There generally must be exclusive use of a portion of the home for conducting business on a regular basis. For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.
- The home must generally be the taxpayer’s principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home but also uses their home to conduct business may still qualify for a home office deduction.
- Expenses that relate to a separate structure not attached to the home may qualify for a home office deduction. They will qualify only if the structure is used exclusively and regularly for business.
- Taxpayers who qualify may choose one of two methods to calculate their home office expense deduction:
- The simplified option has a rate of $5 a square foot for business use of the home. The maximum size for this option is 300 square feet. The maximum deduction under this method is $1,500.
- When using the regular method, deductions for a home office are based on the percentage of the home devoted to business use. Taxpayers who use a whole room or part of a room for conducting their business need to figure out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full.