How Do I Deduct My Home Office?

How Do I Deduct My Home Office?

There are two methods for deducting your home office. Our team can help you determine which method works best for your situation.

Standard Method

With this method, you deduct the actual expense of your office. For expenses that only impact your office (such as paint, office decorations, repairs to your office, etc.) you can deduct 100%. For other expenses (such as depreciation, rent or mortgage, property taxes, home insurance, utilities, maintenance, and general repairs), you can deduct a percentage of those expenses. 

To calculate this percentage, divide the square footage of your office by the square footage of your home. This tells you what percentage of your home your office takes up. For example, if you have a home that is 2,000 square feet and a home office that is 200 square feet, you could deduct 10% of your utilities, rent, repairs, etc.

The Simplified Method

Alternatively, the simplified method can be easier for taxpayers who may find it difficult to gather home expenses or could be more advantageous for taxpayers who have relatively low indirect expenses (such as a home office in a home with low real estate taxes or no mortgage interest to claim). Using the simplified method, taxpayers are allowed a $5 per square foot deduction for the portion of the home used for business—up to a max of 300 square feet. 

For example, a real estate agent with a 200-square-foot office space would be allowed a deduction of up to $1000 under this method (200 x $5). Simple!

How the Deduction Works by Business Type

Sole Proprietor or Single-Member LLC (Schedule C)

  1. Deduction is taken directly on Schedule C
  2. You can choose either method
  3. The deduction reduces net business income 

Partnership (Form 1065)

  1. The partnership does not take the deduction directly
  2. Home office expenses may be:
  3. Reimbursed through an accountable plan, or
  4. Claimed as Unreimbursed Partnership Expenses (UPE) if allowed by the partnership agreement

C Corporation (Form 1120)

  1. The corporation can reimburse the shareholder-employee through an accountable plan
  2. The reimbursement:
  3. Is deductible to the corporation
  4. Is not taxable to the employee (when documented correctly)

S Corporation (Form 1120-S)

  1. The S Corp cannot deduct home office expenses directly
  2. The shareholder-employee must be reimbursed through an accountable plan
  3. Without an accountable plan, the deduction is lost

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