If you own a business and work out of your home, you can deduct the space used exclusively for the operation of the business. That could mean one or more rooms in your home, space in your garage or basement for file storage, and any other space providing that space is used exclusively for the operation of your business.
With many people working at home since Covid began, we’ve been asked to use this deduction on their taxes. If you are a W-2 earner and are working at home or telecommuting, you are NOT eligible to take a deduction for office in home expenses.
The way to calculate that percentage of business use, you can either divide the number of rooms used for business over the total rooms in the home to come up with a percentage or calculate the actual square footage of the business use and divide by the total square footage of the home. Then you can apply that percentage to the following expenses:
- Mortgage interest and taxes (these get deducted here first and then the balance is taken to Schedule A (itemized deductions). With limitations on the deductions for these items on Schedule A under the new tax act, this is a plus for the business owner who works at home
- Utilities including water, electric, gas
- Repairs to the home
- Certain improvements as they relate to the business use of space
- Landscaping costs
- House cleaning
- Snow removal especially if you receive clients/ customers etc. at your home
9 Mortgage interest and property taxes
- Condo/ HOA fees
- Security costs