Many Americans may think because they work from home, they can take tax deductions for a portion of their rent, utilities and more. Not so fast.
Not everyone qualifies to do that. Wage employees who choose to work from home take on the full weight of their related expenses, tax experts said.
The 2017 Tax Cuts and Jobs Act eliminated unreimbursed itemized deductions for employees, and Congress never brought them back despite a surge in people working from home. The rule runs through 2025, said Eric Scaringe, principal at certified public accounting firm UHY.
Among employed adults who have a job that can be done from home, 75% are working remotely at least some of the time, according to Pew Research Center. Nearly half of them (46%) said that if their employer no longer allowed them to work from home, they would be unlikely to stay at their current job. Despite that, most of them likely aren’t eligible for any home office deductions.
Home office deductions only apply to small business owners who are self-employed. If you do freelance work unrelated to your regular job at home, you might qualify. The rules are strict though, and calculating your deductions can be complicated.
Qualifications for home office deductions
Generally, if you receive a W-2, you’re not eligible — at least on the federal level — unless you also have a side gig that you do from home.
If you’re self-employed and use your home office exclusively and regularly for that work, you may be able to deduct from your federal taxes a portion of home-related expenses, such as mortgage interest, property taxes, homeowners’ insurance and utilities.
But be mindful of details, experts said.
“If you work on your dining table, you can’t deduct that because it’s not used exclusively for work,” said Therese Tippie, EP Wealth Advisors’ tax manager and financial planner. “But you could purchase a desk and have it in a corner of your house and if that’s used exclusively and regularly for work, you can deduct that space.”
Is there any way for W-2 workers to get money back for business expenses? Not through your taxes.
“You can try to get your company to pay for it if they require you to work from home,” Tippie said. “They can reimburse you and deduct it, but then, some might just require employees to come to the office.”
Ways to deduct
There are two ways to take a deduction for your home office space: simplified or regular.
- Simplified home office deduction: You can deduct $5 per square foot, up to $1,500 or 300 square feet, a year for your exclusive home office space — if it’s used for the full year. If you only use that space part of the time, then you prorate that amount, Tippie said.
- Regular direct home office deduction: This could result in a larger deduction. However, it requires you to track all your home office expenses, including any costs for repairing and maintaining the space.
“If you have a spare bedroom and made repairs to turn it into an office — added built-in shelving, painted it to get it ready for Zoom meetings … all that can be counted toward home office expenses,” Tippie said.
You can also claim deductions for a portion of other expenses such as rent or property taxes, home depreciation, and utilities — based on the proportion of the space to the rest of your house.
For example, if your office is 250 square feet and your home is 1,000 square feet, you’d deduct 25% of your allowable expenses (250/1,000 = 0.25). If you had $10,000 in eligible home-related expenses, you could claim up to $2,500 in deductions. There isn’t a limit on how much you can deduct.
Can I deduct supplies?
Yes, if they are both common to your industry and necessary to help your business — and you have receipts.
Items you might deduct include cell phones, laptops, printers, and other office supplies.
“Given the value of these items, you can just write off the entire amount and expense it,” Tippie said. “You don’t need to capitalize it. It would go on Schedule C as office or supplies expense in the other expense section.”
But if you also use any of these items for personal things, only the proportion used for work should be deducted. So if you buy a $2,500 laptop but use it 40% of the time for work, you can write off $1,000.
Business lunch tax deduction
In general, you can deduct only 50% of your business-related meal expenses, according to the IRS. Taxes and tips relating to a business meal are included as a cost of the meal and are subject to the 50% limit.
Entertainment expenses are not deductible and haven’t been since the Tax Cuts and Jobs Act in 2017, the IRS said. If you take someone to an establishment that offers entertainment and food, you must separate the food from the entertainment cost and only deduct that portion.
