The Deduction for a Home Office

The Deduction for a Home Office

The IRS states that a taxpayer can deduct home office costs only if the room is used “exclusively” and “regularly” for business. One of the following conditions must be met in order to claim a home office deduction:

  • Use as the taxpayer’s sole and regular place of business Use as the taxpayer’s place of employment for the performance of administrative or management activities associated with the business, provided that the taxpayer does not have any other fixed location from which the taxpayer performs a substantial amount of such activities.
  • Home office is defined by the Internal Revenue Service to include a room, portion of a room, or a separate building that is used by the owner frequently and exclusively in the conduct of his or her trade or profession.

For the purposes of the exclusive-use test, if a taxpayer uses a certain portion of his or her house exclusively for business activities, such as holding inventory, then that use is considered to be legitimate. If the space is regularly used for business, then it meets the regular-basis requirement. Use in the course of business does not count. You should speak with a professional CPA in Naperville, IL, if you have any questions. 

The IRS considers two elements when deciding what constitutes the “principal place of business:” How much time does the taxpayer spend working from home, as opposed to other locations? Do the bulk of your top-tier revenue generators happen in the home office? When deciding which location is best for a company’s main operations, both criteria must be considered.

For tax years 2018 through 2025, employees can no longer deduct business-related home-office expenses due to changes made by the Tax Cuts and Jobs Act of 2017.

Before the 2018 tax year, employees may deduct home office costs if they met certain criteria, such as making sure their employer was happy with the arrangement (not just the employee). An employee needs to meet two further requirements before they can take advantage of the home office deduction.

An employee needs to meet two further requirements before they can take advantage of the home office deduction. First, the employer must approve of the employee working from home (maybe because the company does not have an office where workers can get their work done). As a second point, the taxpayer does not use any of the space rented to the business to carry out any of the duties associated with their employment. Telecommuting workers may be eligible for the home-office tax break.