Home Office Deduction for the Self-Employed

Expenses for business use of your home are alive and well if you are self-employed! 

Beginning in 2018 for employees of a business, the Tax Cuts and Jobs Act of 2017 eliminated the “Home Office” deductions previously deductible on Form 1040 Schedule A – Itemized Deductions. The good news is if you are self-employed and report the activity of your business on Schedule C, the Home Office deduction is still allowed. If you are an S Corporation or LLC it gets a bit more complicated, but the costs are deductible.   

There are two methods for calculating the deduction:
 

  • Form 8829

Completing Form 8829 requires allocating expenses for mortgage interest, property taxes, insurance, repair and utilities, just to name a few.  You must also calculate an amount of allocable depreciation of your home.  Then, when you sell your home, a portion of the gain may be recaptured for depreciation taken.

  • Simplified Method

The simplified method allows a deduction of $5 per square foot with a maximum deduction of $1,500 (300 square feet / the equivalent of a room 15 feet by 20 feet). While limited, requires no recapture of depreciation upon sale of the home.

 

To recap, if you are self-employed it is definitely still worth it to capture the deduction for home office expenses, however, employees who previously deducted home office expenses are no longer able to use the deduction. 

We’re here to help! If you’re self-employed and need direction, please contact us to talk about which method is best for your situation.