Everything You Need to Know Before Taking a Home Office Deduction on Your Taxes

It doesn’t matter if you own your home, rent, or live in a yurt, if you work from home you can probably include a home office deduction when filing your 2018 taxes.

The thing is, taxes can be scary and confusing. Especially when you work from home or are freelance. We’re here to help.

Below is everything you need to know before taking a home office deduction on your taxes.

But first, what is a home office deduction?

If you work for a virtual company without an office, own your own business, or work as a freelancer, you likely log most, if not all of your work hours from your home.

A home office deduction basically reimburses you for the part of your home that you use as a home office. The home office deduction is available for homeowners and renters, and applies to all types of homes (so if you really do live in a yurt like one of our Remoters, you’re in luck). 

Take the time to figure out if your workspace qualifies you for a home office deduction | Submitted by Pablo Varela

But wait, what qualifies as a “home office?”

According to the IRS, you must use your “home office” regularly and exclusively for business-related activity. That means carving out a room or space within your house that is used exclusively as a home office is important. It also means, you need to use your home office regularly. You may spend a lot of time at the coffee shop or coworking space, but your home office should be your primary workspace.

The home office deduction rule also applies to a freestanding structure like a garage or standalone studio.

How do I calculate my home office deduction?

The IRS has a handy new home office deduction calculator to make the answer to this question simpler. The gist? You can write off $5 per square foot of your home that you used for your business with a maximum 300 square feet. That means if your home office is 300 square feet, your home office deduction would be $1,500.

If your home office is larger than 300 square feet, lucky you, but you’ll have to use the old home office deduction method explained below.

Unless your workspace is larger than 300 square feet, you can use the simplified home office deduction method | Submitted by Julia Mullaney

The old home office deduction method

If your home office is larger than 300 square feet or you think you’ll be able to deduct more using the regular home office deduction method, here’s what you need to know.

First you’ll need to determine what percentage of your home you use as a home office. If your home is 1,200 square feet and your home office is 200 square feet, then your home office makes up just under 17 percent of your home. That means your home office deduction would be 17 percent of your rent or mortgage.

Your home office deduction may also include mortgage interest, insurance, utilities, repairs, and depreciation.

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