The Tax Cuts and Jobs Act narrowed the requirements for claiming a home office deduction; employees are no longer eligible. However, a home office deduction may be available to you if you run a business from your home or are otherwise self-employed and use part of your home for business purposes.
All homeowners can claim itemized deductions for property tax and mortgage interest on principal residences, subject to certain limits. Expenses such as insurance, repairs, and utilities are not usually deductible. However, if part of your home is used for business purposes, you may be able to deduct a portion of those expenses, including depreciation. You may also be able to claim the simplified home office deduction of $5 per square foot, up to 300 square feet ($1500).
Defining regularly and exclusively
To qualify for the home office deduction, part of your home will need to be used as your principal place of business “regularly and exclusively.” Regular and exclusive are defined as:
1-Regular use: you use a specific area of your home for business on a regular basis. Incidental or occasional business does not constitute regular use.
2-Exclusive use: you use the specific area of your home only for business. The space does not need to be partitioned off from the rest of the home but cannot be used for both business and personal purposes. For example, a home office that doubles as a guest bedroom is ineligible.
Defining principal place of business
Using a home office as your principal place of business is another criteria to determine if your space qualifies for the home office deduction. To be a principal place of business the space must 1) be used exclusively and regularly for administrative or management activities of your business, and 2) be the only fixed location where you conduct substantial administrative or management activities.
Examples of administrative or managerial activities include:
- Billing customers, clients or patients
- Keeping books and records
- Ordering supplies
- Setting up appointments
- Forwarding orders
- Writing reports
What if it isn’t my principal place of business?
You may still qualify for the deduction if you use your home for meetings. Meetings are defined by physically meeting with patients, clients or customers on your premises. Your home must be a substantial and integral factor to the business being conducted.
You may also qualify with use of your home for storage. This storage must be exclusive and regular. You can store items in your home, or separately in a free-standing structure (such as a studio, workshop, garage, or barn) and still qualify for the deduction.
If you have questions about the home office deduction or want help determining if you qualify, contact us at 949-860-9902 or click here and we will contact you.