Kupicoo | Getty Images
If you’re wondering about getting any tax breaks on your work-from-home expenses, you are probably out of luck.
Blame the IRS.
“Even if you are required to work remotely due to the quarantine, unfortunately employees are not allowed to take a tax break for any home-office expenses,” said Gail Rosen, a CPA in Martinsville, New Jersey.
The reason? The Tax Cuts and Jobs Act, which went into effect in 2018, cut employees’ ability to write off business expenses that their company did not reimburse.
In other words, you do not suddenly have a home office just because you work from home. And anything you bought to make your work-from-home-life easier — an office chair, new monitor, Wi-Fi booster — is also your responsibility.
You could ask your employer to reimburse you for these expenses, Rosen says. Good news: If your company pays you back, the reimbursement will not be considered taxable income.
Here’s how to take the deduction if you qualify
Nora Carol Photography | Getty Images
Taking the home-office deduction isn’t complicated if you qualify.
“You simply fill out Form 8829 and calculate your home-office deduction there,” Stoner said.
Lance Cothern, 33, a freelance writer and founder of MoneyManifesto.com, says the simplified home-office deduction, which bases home-office costs on $5 per square foot, makes it much easier. “That’s what I have taken in the past, so I don’t have to mess with the crazy calculations,” Cothern said.
You can use that formula for up to 300 square feet of office space, for a maximum annual deduction of $1,500.
More from Invest in You:
Here’s why you need to be hands off your 401(k)
If you think your job is on the chopping block, here’s what to do
This simple financial plan makes it easier to get through tough times
Riley Adams, 31, a CPA who blogs about personal finance, claimed the deduction last year because he had an entire room solely used for a home office.
It was good for a small deduction against his taxable income, says Adams, who lives in the San Francisco Bay area.
It may not be for everyone. Bottom line, you have to run the numbers.
Ashley Patrick, 35, who has a personal finance blog, says the hassle would outweigh the benefit. “The difference was in our tax return,” Patrick said. It would have cost more to file for the deduction than it would have saved her in taxes, according to her CPA.
If you’re an independent contractor, you can still deduct your home office on Schedule C, says Brian Stoner, a CPA in Burbank, California.
“It almost always makes sense to take it if you are self-employed, as you are allowed to take a percentage of your home expenses as a business expense,” Stoner said.
“Your home office must either be your principal place of business or must be used on an exclusive and regular basis to meet customers, or a separate, unattached structure on the same property as your home,” Rosen said.
But if you sell …
One thing to keep in mind: You’ll have a tax bill if and when you sell your house at a profit, Rosen says.
“You’ll have to pay tax on the business percentage of the gain,” she said. “For example, if your home office was 10% of your home, then 10% of the gain would be taxable, subject to depreciation recapture rules.”
More good news, this time for tenants. “There are no tax consequences to a renter when they move. No recapture of taxes, no computations,” Rosen said.
For Kathy Kristof, who lives in a Los Angeles suburb, a dollar in the hand today is worth $5 at some future time. “You are arbitraging your tax rate and your time,” said Kristof, 60, the founder of a side hustle review site.
Southern California is expensive in terms of property taxes, home prices and home values.
“All of those things factor in,” Kristof said. “When you’re in a high-cost, high-tax state, that’s when calculating the exact home-office deduction calculation makes sense.”
In Kristof’s case, the savings comes to thousands of dollars. She and her husband both have dedicated home offices in their house, and it’s a significant portion of their square footage. “It allows a lot of write-offs we otherwise would not get,” she said.