How to preserve your home office deduction

Do you work from home? Frequently, you can qualify for home office deductions offsetting taxable income from a sole proprietorship or other small business. However, if you're not careful, one misstep can cost you your deduction.

Rules around home office deductions

Generally, you may claim home office expenses only if part of your home is used regularly and exclusively as either:

• Your principal place of business; or
• A place to meet or deal with customers, clients or patients in the normal course of business.

Under the latest rules, deductions have been extended to businesspeople like landscapers and painters who perform administrative duties at home while providing services at multiple locations.

Keep in mind that recent tax legislation eliminated the deduction for any miscellaneous expenses, such as unreimbursed employee business expenses, until 2026. That means employees can no longer deduct home office expenses if their offices are used for the employer's convenience.

If you qualify

You can deduct expenses directly attributable to the home office (e.g., business supplies) plus a portion of indirect expenses (e.g., utilities and depreciation) based on the percentage of business use.

For instance, if a room used as an office makes up 10 percent of the home and you end up with $10,000 in indirect expenses, you can deduct $1,000. Alternatively, you may claim a simplified deduction of $5 per square foot of office space, up to a maximum of $1,500.

Don't get tripped up by "regular and exclusive"

The sticking point may be the requirement for business use to be regular and exclusive. In other words, if you use a room or a portion of a room for your business, you can't use the same area for personal purposes. Although the IRS doesn't expressly require physical separation of a business part of a room, that certainly bolsters your position.

Suppose you use a computer in your home office both for business and personally. Technically, this taints your deduction because your business use is no longer exclusive. To be on the safe side, you might acquire another device for personal use and use the computer strictly for business.

Questions about claiming the home office deduction? Call us and we can help you.