In general, you must fulfill one of the following requirements to be eligible for the home office deduction:
Exclusive and frequent use: You must frequently utilize a section of your home, apartment, condo, mobile home, boat, or other comparable structure for your business. The buildings on your land, such as a detached studio, barn, greenhouse, or garage, are also included in this. It excludes any area of a taxpayer's property that is used only as a hotel, motel, inn, or another similar enterprise.
Principal place of business: Either your home office serves as your company's main location or it serves as a venue for regular client or customer meetings. Daycare centers and storage facilities are a couple of the exceptions to this guideline.
How does "exclusive usage" work?
The requirement that you utilize a section of your home primarily and frequently for your business is the main barrier to eligibility for these deductions.
The IRS takes the criterion for exclusive use seriously, and the law is clear on this point. Let's imagine that you dedicate a room in your house to your full-time business, working there ten hours a day, seven days a week. You break the exclusive-use criterion and lose the opportunity to deduct your home office expenses if you allow your kids to conduct their homework at the office.
The exclusive-use standard is met if personal activities intrude on the home office no more than they would be allowed to in an office building, according to some experts, even though individual IRS auditors may be more or less strict on this point. The office can also be a certain area of space, and you can demonstrate that only business-related activities are permitted there.
What does "regular use" mean?
Regular use isn't exactly defined in any particular way. You would fail this criterion if you occasionally used a room that would otherwise be empty and simply used it as a convenience for your business.
Each case that the IRS contests is subjected to this standard based on its specific facts and circumstances.
Definition of "main place of business"
Your home office must be the primary site of that firm or a place for frequent client or customer meetings in addition to passing the exclusive- and regular-use standards.
You do not need to pass the principal place of business or the dealing with clients tests if your home office is in a separate, unconnected building, such as a detached garage that has been transformed into an office. You can be eligible for home business write-offs if you pass the exclusive-use and regular-use standards.
What if your company only has one home office but you spend most of your time working elsewhere?
Keep in mind that the rule states that your home office, not your primary workplace, must be where you conduct your business. You can pass this test as long as you use your home office to handle your administrative or management duties and don't use another fixed location very often.
You can pass this test even though you spend a lot more time in the office where you work as an employee if you are an employee of another company and also operate a side business from home.
This rule makes it simpler for those who do most of their income-generating activities elsewhere to claim home office deductions (such as outside salespeople or tradespeople).
Your home office business deductions are calculated using either a simplified square footage computation or the percentage of your house that is used for the business.
The cost of running the home office is divided into direct and indirect business expenditures:
Direct costs are entirely deductible. For instance, all expenses associated with painting and carpeting the home office are fully deductible.
Indirect costs are divided proportionally between corporate and personal use. Measuring the area committed to your home office as a proportion of the overall area of your home is the most accurate way to determine the business percentage of your home.
For example, your business percentage would be 20% if, for instance, the office is 250 square feet while the home is 1,200 square feet. You would then deduct 20% of your indirect housing expenses.
STANDARD FOOTAGE APPROACH
The IRS started providing a more straightforward method for claiming the deduction, where the new approach multiplies the allowed square footage of the home by a set rate.
The set pricing is $5 per square foot with a 300-square-foot maximum for 2021.
The area must nevertheless be reserved for business purposes.
Do I qualify for a home office tax deduction if I work from home as an employee?
Unfortunately, if you're not a business owner but rather a remote worker, you can't use the home office tax deduction (however, some states do allow this tax deduction for employees). Employees were able to deduct unreimbursed employee business expenditures, including the home office deduction, before the Tax Cuts and Jobs Act (TCJA) was enacted in 2017. However, these deductions for employee business costs have been removed for tax years 2018 through 2025.
Should I claim the home office tax deduction if I'm self-employed?
You may have heard that taking the home office deduction increases your chances of getting audited by the IRS and raises a red flag for them. Although this suggestion may have had some validity in the past, modifications to the tax code in the late 1990s made it simpler for those who work from home to be eligible for these write-offs. Therefore, if you are eligible, please take it.