Qualifying for a home office deduction became more difficult in 2018. The Tax Cuts and Jobs Act, which kicked in for tax year 2018, no longer allows you to claim a portion of your home as a deduction if you are someone's employee. If you're self-employed, there's no problem. Here's how the rules changed.
For years, you could deduct qualifying home office expenses provided you kept a dedicated space in your home used exclusively for business. It couldn't double as the family den, for instance. Even if you conducted business outside the house, you could take the write-off, if you used your home office to conduct business regularly.
Until 2018, working for an outside employer was okay provided you met certain tests. The big one, under the old rules: Business use must be for the convenience of your employer, and not just to make life easier for you. That's gone! If you're employed by your own company, you can still deduct your home, but you no longer are entitled to the deduction if you're an employee of a company you don't own.
Now, qualifying for the deduction for self-employed requires that your home office deduction, when totaled with other itemized deductions, exceed the new standard deduction of $12,000 for singles and $24,000 for married couples filing jointly. The near-doubling of the standard deduction means many fewer taxpayers qualify to deduct their home office.
Should you still qualify for the home office deduction, expenses associated with using the portion of your dwelling used as a workspace are deductible. So, you can deduct a portion of your home expenses, such as for mortgage or rent, insurance, electricity and furniture, not to mention a dedicated business phone line and other expenses.
You can use one of two methods to figure out how much you can deduct, choosing whichever gives you the best result. With the first, you figure out how much your home office is as a percentage of your entire home. So, if the office is 300 square feet and your house is 3,000 square feet, you can write off 10% of home-oriented costs (300 divided by 3,000).
With the second method, which is simpler, you get $5 off per square foot, up to a 300 square-foot maximum. So, for your 300 square-foot office, you can deduct $1,500 (5 times 300).
It's unlikely losing this tax break will make you quit your job and become self-employed but it's just tough luck that employees who no longer can take advantage of it. Qualifying for a home office deduction can bring you tax savings annually if done properly and we are happy to ensure you get professional tax advice.