Working from a home office space has become mainstream but that does not mean you can deduct expenses associated with it. For 2018, even fewer taxpayers will be able to deduct home office expenses.
Changes under the TCJA
Home office expenses are a miscellaneous itemized deduction for employees. You are only eligible for this tax benefit in 2017 if these expenses plus additional miscellaneous itemized expenses (such as unreimbursed work-related travel, certain professional fees and investment expenses) add up to more than 2% of your adjusted gross income.
However, as an employee you will not be able to deduct any home office expenses for 2018 through 2025. The Tax Cuts and Jobs Act (TCJA) suspends miscellaneous itemized deductions for this period. If you’re self-employed then the deduction will still be available to you during that time; for 2018 through 2025 you can deduct all eligible home office expenses against your self-employment income.
Other eligibility requirements
As an employee, your use of the home office must not only be for your convenience, but also for that of your employer. If you are self-employed then your home office must be your primary place of business (with a few exceptions).
Regardless of how you’re employed, the home office space must be used regularly (not every now and then) and exclusively for business purposes. For instance, if your home office doubles as a guest bedroom or if the kids come in to do their homework there, you cannot deduct the expenses associated with that space.
2 deduction options
For qualified expenses, the home office deduction can be a beneficial tax break. You have two deduction options:
- Deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, as well as the depreciation apportionable to the office space. This requires calculating, allocating and substantiating actual expenses.
- 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
This article only briefly covers a few of the rules and limits for home office deductions. If you think you may be eligible for 2017 or want to know what you need to do to be eligible for 2018, please call us at 818-334-8623 or contact us.