Certain home expenses may be deducted on your tax return if you’re running a business from home. While these deductions may not be applicable to everyone who has been working from home during the pandemic (such as employees), there are a few areas to bring up with your CPA or tax advisor when filing your 2021 taxes.
First, the home office tax deduction is available to both homeowners and renters, and certain expenses such as mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent may be deducted. However, there are certain specific requirements that taxpayers must meet to claim home expenses as a deduction and the deductible amounts may be limited.
The IRS defines the term “home” as a house, apartment, condominium, mobile home, boat or similar property which provides basic living accommodations; or a separate structure on the property such as an unattached garage, studio, barn or greenhouse.
In order for a taxpayer’s home to qualify as a deduction, there must be exclusive use of a portion of the home for conducting business on a regular basis. So if you’re using a guest room to run your business, you can take the home office deduction for that room only if it is used regularly and exclusively for your business.
Generally, your home must be the principal place of business but taxpayers may meet this requirement if performing administrative or management activities at the home and there is no other location to perform these duties. Even if the home is not a principal place of business but a portion of the home or a separate structure is used exclusively for conducting business on a regular basis i.e., meeting clients, customers or patients, the tax deduction may apply. Employees are not eligible to claim the home office deduction.
Be sure to speak with your tax preparer to determine if you qualify and how best to calculate your home office expense or indirect expense deductions based on the nature of your business activities and the portion of your home used exclusively for your business. If you’d like a referral for a tax advisor or CPA, feel free to contact Chase Law Group.