Claim The Home Office Deduction

If you work from home and/or are self-employed, you’ll likely want to claim the home office deduction on your taxes this year.

This assumes that you first, have a dedicated home office. Sitting with a laptop on a couch doesn’t qualify. It needs to be a designated area. Having a separate room is best.

Among the things you can deduct are office supplies, rent, utilities, insurance, painting and repairs, depreciation, real estate taxes, and deductible mortgage interest.

You can use form 8829 to figure the home-office deduction or this online Home Office Deduction Calculator. You must then report this amount on Schedule C.

If you split the rent with someone else, only report the rent and square footage for the amount you to which you contribute. So if your apartment is 500 square feet, your rent is $2000, and you split it with one other person, report the square footage as 250 and your rent as $1000.

At least that’s what our accountant told us. — BEN POPKEN

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  1. Avacasso says:

    Is there a threshold of the work that one must do in a home office to declare it?

    for example, if I work the equivalent of 1 day a week at home, can I make a home office deduction, or is that just begging a visit from the IRS?

  2. Sudonum says:

    I have been self employeed and working out of my house for the last 7 years. I have NEVER claimed The Home Office Deduction. This one supposedly sets off too many red flags at the IRS. I BELIEVE you have to be self-employeed in some fashion. If you file only a with a W-2 and not a 1099-misc with some other income source you can’t even try to claim it. Every account I have ever talked to told me that it wasn’t worth the deduction for me to try and claim it. Anybody else out there have any different edvice?

  3. Sudonum says:

    Every ACCOUNTANT that is

  4. thejbs says:

    All I hear in these tax discussion is this paranoia about the dreaded ‘red flags’. Do you have a clue as to how many BS loopholes the rich use?

    if its a valid deduction its a valid deduction.

    and if you bought red flags for your home office its still a deduction.

  5. thrillhouse says:

    Acording to Norm “The Tax Man” Rollins, claiming this deduction is in general just begging for a visit from the IRS. The assumption the IRS makes is that you’ll screw up (or overstate) somewhere when figuring square footage, and then applying that to your utilities and such.

    Its really kind of a pain in the ass to do. Add that to it being a red-flag at the IRS. I’ll pass.

  6. homerjay says:

    I’m self employed. I claim it. My accountant figures out the deduction taken. The question I have is when you say “a separate room would be best” how are they going to know what room you’re taking?

    I mean, if I actually DO sit on the couch with my laptop and I claim that the spare room is my office whats stopping me from going out any buying a desk and chair and lamp when the audit notice comes in the mail?

    Of course, that would be sscamming the system. I actually DO have a dedicated room for it. Its a BIG room with very little in it, but its all about square footage.

  7. Kornkob says:

    The assumption is that your average IRS worker is a stereotypical government employee who is looking for the easy way to meet the expectations of the job. Thus, instead of chasing the rich guy who is cheating on big numbers (and thus has the money to fight an audit) they opt for lots of little guys cheating a little bit who are less likely to have the resources to successfully defend themselves from an audit.

    This stragegy then nets the employee a positive score in the ‘successfully procecuted audits’ column.

    Now, I’m not saying this is how it works– I’m merely saying that this seems to me to be the common perception.

  8. B says:

    Im on UR desk, filin UR taxez.

  9. brooklynbs says:

    My accountant was warning me about the home office deduction last week, but I told her to go ahead with it. Here’s my rationale:

    1. I actually work from home. I have a salaried, full-time position (W-2) and I do freelance work (1099). I don’t have an office outside of my home, and my employment contract actually stipulates that I maintain a high-speed Internet connection and landline at my own cost.

    2. I have two rooms in my apartment exclusively for business use (an office and a storage room). If the IRS asks, I use my laptop for personal stuff and surf from only from my couch, never from the office!

    3. I actually moved to a larger apartment two years ago because I needed the extra space for business (ok, I was getting booted out of my old place and was ready for an upgrade).

    I use a factor of 33% for my home office deduction, and I apply 70% of that to my full-time job and 30% to my freelance work. I write-off a portion of my telecom expenses, electricity and renters insurance (heat is hot water, and I don’t use the gas stove for work).

    The IRS are hardasses about the home office deduction, especially in high-rent cities such as New York, where auditors for some unknown reason don’t understand how much it costs to rent a 500-square foot apartment. I would suggest consulting an accountant before taking the home office deduction.

  10. gte910h says:

    I’ve read you should consider submitting unit floorplans and photos with the forms and mail them in if I wanted to take the deduction. Then the auditors would see what was where, and probably overlook me.

  11. J.D. Roth says:

    I echo what a couple people have said. My accountant is a close friend and an excellent CPA. I have a home office, and he’s willing to help me claim it, but he’s warned that this is a huge red flag for the IRS, and that I need to understand that my chances of being audited will increase dramatically. I have nothing to hide, but I’m still wary, you know?

  12. kenposan says:

    My wife works from home full time and I work from home part time. We both sit on couches with our laptops. We lost our office when the twins were born. Fair trade, I suppose… LOL

  13. robrob says:

    lot’s of paranoia here!

    i’ve claimed the home office in years where i have worked out of it exclusively as a self employeed freelancer, and in years where i have been a salried employee lving off of a sole W2 salried position. No audits for me in either case.

    as for it being “hard”, Turbo Tax asks a couple questions, and walks you through the process.

    Maybe tax perparers discourage people from it because it COULD be a nightmare if you do it manually (Turbotax generates a 19-23 page return for me)? Maybe the IRS just likes that audit boogeyman floating around to make things easier and more porfitable for them?

  14. MAVickers says:

    I have a slightly different question on this — if you have registered yourself as an LLC but claim the home office deduction, does that give an entity (i.e., a customer) a license to go after your personal assets (i.e., your home) if they decide to sue the LLC?

  15. Chongo says:

    My parents use this deduction as well. They run a home based business. They actually had the accountant come to the house and measure out square footage for use of business space. Works for them as its supposed to. Never had any audits.

  16. alexanac says:

    Self-employed here as well and I don’t take the deduction. My CPA told me that it just wouldn’t be worth it. I own my home and would only deduct a small portion. Because of the deduction, my CPA would need to keep track of how much I deducted for each year so that when I sold the place, they could appropriate the proper impact. For an owned residence, it’s not just “deduct and forget.” There are impacts upon sale based on the past deductions. I’d probably pay my CPA more to figure this crap out when I sell than I would actually save along the way. If it also helps lower the risk of audit, all the better. YMMV though…

    I’m super aggressive when it comes to other deductions though. This one just isn’t cost-effective for me.

  17. qazwart says:

    To use a home office, you must have a dedicated area. It cannot be used for anything else. You cannot use it for doing your personal bills, playing computer games, storing household records, etc.

    Otherwise, all you need to show is that you need an office for business purposes. For example, you are self-employed, or you occasionally work from home. There is no real minimum — just show that your home office is needed for your work.

    For example, I use to do software builds at one company. Occasionally, I would long in remotely to fix a problem. That may have happened two or three times per month, and I didn’t spend more than an hour each time. But, I could deduct the area used as a home office as long as I didn’t use the area for anything else. I even made sure there were no games on my computer because I didn’t want the IRS to claim that I used the area for personal entertainment.

    The theory is pretty simple: You would have rented or bought a smaller place, but because you need a dedicated area for work, you had to get an extra room. Since you needed it for your business or work, you can deduct the expense.

    However, if you needed an extra room for you to pay your bills or have a place to hang your computer, it doesn’t count as a deduction because you needed that room anyway.

  18. daveistrad says:

    I’m a third-year law student, and just had a class on federal income tax. I don’t know, practically speaking, what your odds of getting in trouble are, but, per Section 280A(a) of the United States Tax Code, home offices are NOT deductible unless you meet one of the specific exceptions laid out at Section 280A(c).

    I’m not comfortable giving any detailed legal advice, so I’m gonna have to recommend you just read the exceptions yourself. And if possible, read Popov v. Commissioner, 246 F.3d 1190, (9th Cir. 2001). Basically, home offices used to be a common deduction many years ago, but people abused the hell out of it, so the IRS tightened up that particular code provision ridiculously.

    The consensus in my class (including the professor) is that deducting a home office is simply too big a gamble. But hell, we’re all wanna-be-lawyers and naturally risk adverse, so maybe it’s fine.

  19. airren says:

    I think most of these CPAs simply don’t want to take the time to do all the calculations. If you sincerely work from home and maintain a home office, what is the fear? I guess I don’t get it. It’s a hassle to be audited, but if you have all the correct documentation, all should be fine.

  20. SECURITY says:

    This type of deduction will in fact become more mainstream.

    The Internet and availability of broadband and Web 2.0 services will make SOHO and home offices much more productive for telecommunters and start ups as well as sole proprieters.

    Many entreprenuers already have Internet Businesses that fully utilize technology so they work alone and outsource that which technology can not yet replace.

    So, it is essential that they take advantage of thes tax deduction.

    They are not loopholes, but valid options in today’s virtual Business climate.

  21. mconfoy says:

    What are the tax implications when you sell your house? I have heard that since you have taken a deduction on the home office every year that you can expect to pay capital gains on that percentage of the house. Of course capital gains tax keeps going down. But I have been told that the effort plus the capital gains hardly makes it worthwhile. Any thoughts?

  22. nweaver says:

    Actually, the big thing to avoid red flags is not the home office decution, its a LOSS on Schedule C.

    If you use a home office deduction, but don’t have enough 1099 income so that your schedule C is negative, THAT is a big flag.

  23. pestie says:

    $2000 for a 500-square-foot apartment? Jesus Harold Christ! This is why I don’t live in New York City, I guess. The mortgage on my 2100-square-foot house costs about half that.