CARL WATTS & ASSOCIATES

July 02, 2018

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The Home Office Deduction
as of 2018
Just a few months ago, we were commenting on the fact that many entitled taxpayers usually overlook claiming the home office deduction. It is now no longer the case.

Until 2018 qualifying employees were able to deduct home office expenses if they performed tasks at home for the convenience of their employer.


Under the new law, deductions for all employee business expenses, as part of the miscellaneous itemized deductions subject to the 2% floor, are suspended through 2025.

We cannot stress enough the importance of employees being aware of the change in the employee business expenses rules and the impact on their projected taxes for 2018 and beyond.

However, if you are self-employed, you can deduct eligible home office expenses against your self-employment income. This deduction will still be available to you for 2018 through 2025.

All this being said, let’s take a quick view over this deduction and clarify what precisely can enable you to deduct expenses for the business use of your home as we know this far.

First of all, there are two basic requirements for your home office to qualify as a deduction:

1. Regular and Exclusive Use.

You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.

2. Principal Place of Your Business.

You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction.



For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business.


You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.

Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.

Deductible expenses for business use of your home include:

  • the business portion of real estate taxes,
  • mortgage interest,
  • rent,
  • casualty losses,
  • utilities and services,
  • insurance,
  • depreciation,
  • maintenance, and repairs.

In general, you may not deduct expenses for lawn care or for painting a room not used for business.

If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home.
If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited.

Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation of your home (with depreciation of your home taken last), that are allocable to the business, is limited to the gross income from the
business use of your home.

As mentioned earlier, there are two methods you can use to figure the amount of your home office deduction.

The Regular Method

Historically, taxpayers have computed the business use of home deduction by allocating the total expenses of the home to the percentage of the home floor space used for business.

However, a qualified daycare provider who does not use his or her home exclusively for business purposes must figure the percentage based on the amount of time the applicable portion of the home is used for business.

If you choose the regular method, then you must use Form 8829, Expenses for Business Use of Your Home, with your tax return.

The Simplified Option

While you can still figure the deduction using the regular method, many of you may find the optional safe harbor method less burdensome.


Beginning in 2013, qualifying taxpayers may use a prescribed rate of $5 per square foot of the portion of the home used for business, up to a maximum of 300 square feet, to compute the business use of home deduction.

Under this safe harbor method, depreciation is treated as zero and you can claim the deduction directly on Form 1040, Schedule C.

Instead of using Form 8829, for the regular method, you indicate your election to use the safe harbor option by making two entries directly on the Schedule C for the square footage of the home and the square footage of the office.

Deductions attributable to the home that are otherwise allowable without regard to business use (such as qualified residence interest) are allowed on Form 1040, Schedule A, Itemized Deductions.

You may choose to use either the simplified method or the regular method for any taxable year. You choose a method by using that method on your timely filed, original federal income tax return for the taxable year.

Once you have chosen a method for a taxable year, you cannot later change to the other method for that same year.

If you use the simplified method for one year and use the regular method for any subsequent year, you must calculate the depreciation deduction for the subsequent year using the appropriate optional depreciation table. This is true regardless of whether you used an optional depreciation table for the first year the property was used in business.

Under the regular method for computing the deduction, you may be able to carry forward some of these business expenses to the next year, subject to the gross income limitation for that year.

There is no carryover provision under the safe harbor method, but you may elect into and out of the safe harbor method in any given year.

No matter the method you choose for this deduction, we always urge you to enroll the services of a tax professional to make sure you take all the tax credits and deductions you are entitled to for your particular business or financial situation.


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