Tax laws

Who is eligible for the head office deduction under the new tax laws?

small business weekSeptember 22-24 is a good time for individuals to consider taking advantage of the home office deduction if they qualify. The benefit may allow taxpayers working from home to deduct certain expenses on their tax return.

The home office deduction is available to eligible self-employed taxpayers, independent contractors and those working in the gig economy. However, the Tax Cuts and Jobs Act suspended the commercial use of the home deduction from 2018 to 2025 for employees. Employees who receive a paycheck or W-2 exclusively from an employer are not eligible for the deduction, even if they currently work from home.

Benefit from a deduction

There are two basic requirements to benefit from the deduction. The taxpayer must use part of the house exclusively for the regular exercise of his activities and the house must be the principal place of business of the taxpayer.

To benefit from the deduction, a taxpayer must use part of his residence for one of the following activities:

  • Exclusively and regularly as the main establishment of a trade or business
  • Exclusively and regularly as a meeting place for patients, clients or clients in the ordinary course of a trade or business
  • As a separate structure not attached to a dwelling used exclusively and regularly in the course of a trade or business
  • On a regular basis for the storage of inventory or product samples used in a trade or retail or wholesale product business
  • For rental use
  • As a daycare

The term “domicile” for the purposes of this deduction:

  • Includes a house, apartment, condominium, mobile home, boat or similar property
  • Includes structures on the property, such as a detached garage, studio, barn, or greenhouse
  • Does not include any part of the taxpayer’s property used exclusively as a hotel, motel, inn or similar business

Eligible expenses

Deductible expenses for business use of the home normally include the business portion of property taxes, mortgage interest, rent, loss in case of disaster, utilities, insurance, depreciation, maintenance and repairs. In general, a taxpayer cannot deduct expenses for parts of his home that are not used for business purposes; for example, expenses for lawn maintenance or painting a room not used for business.

Claim the deduction

A taxpayer can use either the regular or simplified method to calculate the home office deduction.

Using the usual method, eligible taxpayers calculate the deduction for business use of the home by dividing the operating expenses of the home between personal use and business use. Declaration of self-employed taxpayers IRS Schedule C, Business Profit or Loss (Sole Proprietorship) first calculate this deduction on Form 8829, Expenses for Business Use of Your Home.

Using the simplified option, qualifying taxpayers use a prescribed rate of $5 per square foot of the portion of the house used for business purposes (up to a maximum of 300 square feet) to determine the use business of the home deduction. A taxpayer claims the deduction directly on Schedule C from the IRS. Tax procedure 2013-13 (PDF) provides full details on this safe harbor method.

Daycare facilities

Taxpayers who regularly use their home to provide child care may be able to claim a deduction for part of the home even if it is used as the same space for non-business purposes. To be eligible, the following two conditions must be met:

  • The company must provide child care for children, people aged 65 or over, or people who are physically or mentally unable to care for themselves.
  • The business must have applied for, obtained, or be exempt from having a license, certification, registration, or approval as a child care center or as a family or group child care center under state law.