With so many people currently working from home, the IRS apparently thought it would be an appropriate time to remind U.S. taxpayers about the availability of “home office” deductions and, in particular, whether they can be claimed when filing 2020 tax returns next year. And so, in recently-issued IRS Tax Tip 2020-98, the IRS has summarized the rules for claiming “home office” deductions.
The “home office” deduction allows qualifying individual taxpayers to deduct certain home expenses in reporting their federal income taxes. The deduction currently is not available to employees because unreimbursed employee business expenses are considered miscellaneous itemized deductions which, under the Tax Cuts & Jobs Act of 2017 (the “TCJA”), are not deductible in 2018-2025. Prior to passage of the TCJA, an individual taxpayer's miscellaneous itemized deductions were deductible to the extent they exceeded 2% of such taxpayer's adjusted gross income.
For purposes of the “home office” deduction, the term "home" includes a house, apartment, condominium, mobile home, boat or similar property, as well as structures on the property such as an unattached garage, studio, barn or greenhouse, and eligible expenses include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent. As explained in the IRS Tax Tip, there are two basic requirements for the “home office” deduction:
- The space with respect to which the deduction is claimed must be used exclusively for conducting business on a regular basis. For example, expenses related to an extra room used as an office qualify only if the extra room is used both regularly and exclusively in the business.
- The home must be the taxpayer's principal place of business or, if administrative or management activities are conducted at the home, there is no other location to perform these duties.
The IRS Tax Tip also summarizes the rules for calculating the home office deduction (either a fixed dollar amount per square foot up to 300 square feet or a percentage of the home devoted to business use) and provides that direct expenses are deductible in full, but does not address the rules relating to the deduction of other expenses incurred in a home office, such as those for furniture and equipment used in the home for business.
Application of the rules regarding eligibility for the “home office” deduction and the amounts properly deductible can be complicated and highly fact-specific. If COVID-19 and working at home has triggered questions about your eligibility for the “home office” deduction, or about any other tax matters.
Originally published by Frankfurt Kurnit, August 2020
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