During the COVID-19 pandemic, you might be one of many that had to shift and work from home. Perhaps you are questioning, “Can I claim the home office deduction on my 2020 tax return?”
The short answer is: Only if you’re self-employed. Employees can no longer claim home office expenses, and even self-employed taxpayers must follow strict rules to claim a deduction.
If you qualify, you can deduct the “direct expenses” of the home office. This includes the costs of painting or repairing the home office and depreciation deductions for furniture and fixtures used there. You can also deduct the “indirect” expenses of maintaining the office. This includes the allocable share of utility costs, depreciation, and insurance for your home, as well as the allocable share of mortgage interest, real estate taxes, and casualty losses.
Alternatively, you can use the simplified method for claiming the deduction — $5 per square foot for up to 300 square feet. Although you won’t be able to depreciate the portion of your home that’s used as an office, you can claim mortgage interest, property taxes and casualty losses as an itemized deduction to the extent otherwise allowable, without needing to apportion them between personal and business use of the home.
You can deduct your expenses if you meet any of these three criteria:
1. Principal place of business.
2. Meeting place.
3. Separate structure.
You may also be able to deduct the expenses of certain storage space for storing inventory or product samples. If you’re in the business of selling products at retail or wholesale, and if your home is your sole fixed business location, you can deduct home expenses allocable to space that you use to store inventory or product samples.
The amount of home office deductions for self-employed taxpayers is subject to various limitations. Proper planning is key to claiming the maximum deduction for your home office expenses. Contact us if you’d like to discuss your situation.