Can I Expense My Rent If I Work From Home?
A portion of the rent for your home is a tax-deductible expense if you work there and follow some special rules. To claim a deduction for your home, the area must be used exclusively and regularly for business. In addition, requirements and limitations exist on whether you are self-employed or an employee.
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Distinctive Business Area
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"Exclusive use" for a home office means a specific area of your home is used only for business. "Regular use" means the area is used regularly for business. Incidental or occasional business use is not regular use. For storage uses, you are only required to use the location regularly but not necessary exclusively.
Portion Deductible
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Your home office area is calculated as a percentage of your entire residence. The dimensions of your office area are measured in square feet and this is divided by the total square footage of the home. Multiplying the percentage by your rent and other home expenses determines your home office tax deduction.
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Self-Employed
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You can deduct the rent attributable to your home office area when it is either your principal place of business or when you have a different primary location. A home office that is not your main location must be used only to meet or deal with clients, customers, or patients in the normal course of business. It might also be a separate structure not attached to your home with an exclusive and regular connection to your business.
Employee
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For an employee to deduct home office expenses, the regular and exclusive business use must be for the convenience of the employer. When a home office is merely helpful, you cannot deduct expenses for the business use of your home. The convenience requirement is often met when the principal business location is a manufacturing or storage facility without office space. These same rules for an employee apply if you work from home for a corporation you own. Work performed at home must meet the convenience standard.
Limitations
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Self-employed individuals deduct their business percentage of home expense separately from other business expenses by using Form 8829. The home office tax deduction for rent is limited to business profit. Any excess is carried over to the next year. Employees use Form 2106 to deduct home office expense as a miscellaneous itemized deduction. Only the part of miscellaneous itemized deductions that exceeds 2 percent of your adjusted gross income is deductible. Moreover, you only benefit from Form 2106 if you have enough total deductions to itemize that exceed the standard deduction.
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