Home Office Tax Deduction is the tax deduction that millions of taxpayers are expected to claim due to the coronavirus pandemic. This deduction is available to everyone who uses their home for business.
You can claim this deduction whether you’re a renter or a homeowner. As long as you use your home for managing your business operations, this deduction can add up to a heft amount and reduce taxable income significantly.
The musts for claiming the home office tax deduction is that your home must also be your principal place of business and you must use your home for business regularly and exclusively.
What “exclusively” means here is that you must use at least a part of your home regularly for business purposes. If you only use a room to run your business, you can only claim the home office tax deduction for that room. As long these are met, there is nothing in your way to claim the home office tax deduction.
Claiming the home office tax deduction
The IRS introduced a simplified option for figuring out the home office tax deduction amount. Even if you use a single room in your home to run your business, you get to claim a deduction for it. Generally, you get to claim $5 per square foot. This is the standard home office tax deduction rate.
We suggest figuring out the deduction you can claim with the standard rate and your actual expenses. Then, you can claim the one that grants you the highest deduction. It works similarly to the mileage deduction for businesses. So, calculate your deduction both ways and see which one reduces your taxable income the most.
There are a few things that you should know before claiming the home office tax deduction on your federal income tax return though. Take note that your deduction amount can’t be more than the gross income from the business use of the home.
In addition to this, the amount in excess of gross income may or may not be carried over depending on how you claim this deduction. If you choose the simplified option, it isn’t possible. If not, the excess of gross income limitation can be conveyed over.