How to Get a Work From Home Tax Deduction — Exceptions for Some Home-Based Workers

Tax season has arrived, and if you work from home, you may be wondering what you can and can’t write off. 

Tax deductions are expenses the government lets you subtract from your income, lowering the amount of your income that gets taxed. They can save you thousands of dollars, so it’s important to claim every deduction you qualify for.

Deductions for people working from home have changed a lot in the last few years. Here’s how.

Can I Claim My Home Office on My Taxes?

In most cases, you can only claim a tax deduction for your home office if:

• You are self-employed 
• Your home office is only used for your self-employment

If you work remotely but receive a W-2 from an employer, then you don’t qualify for the tax break. Similarly, if you use your home office to work remotely for someone else, but also use your home office for self-employment, you cannot claim the deduction.

You may be thinking, “Didn’t I get a home-office deduction in the past?” Yes, you may have. But the Tax Cuts and Jobs Act of 2017 changed who qualifies for this deduction for tax years 2018 through 2025, and beyond if the tax policy of the Act is extended. Even if you qualified for a home office deduction before the Act was passed, you may not qualify now.

Who Qualifies for Home Office Tax Deductions?

Freelancers, certain small business owners, independent contractors, and gig workers usually qualify. You may also qualify if you run a side hustle from your home that earns more than $400 net income per year. Employees working for someone other than themselves usually do not qualify.

How Do I Know if My Home Office Qualifies for a Tax Deduction?

The tax code states that a home office must be on the taxpayer’s property. That means your home office could be a room in your house, or it could be a separate structure that’s on the same property as your house. Other structures count, too, such as apartments, boats, and mobile homes.

Regardless of where your home office is, it must be the main place that you do your job. If you use your home office to make or store inventory, conduct calls, meet clients, operate a computer, or do other essential functions of your business, it may qualify for the tax deduction.

How Do I Claim a Home Office Tax Deduction?

There are two ways to claim a home office tax deduction: the simplified option and the regular method. Some taxpayers find they get a bigger deduction using one method over the other, but which version is right for you will depend on your situation.

Regardless of which version you choose, you’ll need to prove that your home office is essential for your business. You can also only claim the deduction for the  months during which you used the office for self-employment work. If, for instance, you worked for yourself only eight months last year then you can only claim the deduction for those months.

Method 1: Simplified Option for Home Office Tax Deduction

The simplified version of the home office tax deduction allows you to take off $5 per square foot of your home office up to 300 square feet. That means the maximum possible deduction is $1,500.

Method 2: Regular Method for Home Office Tax Deduction

With the regular method, you can write off up to 100% of qualifying expenses. These include supplies like computers, printers, and other equipment, as well as a percentage of your utilities, repairs and maintenance, home or renter's insurance, mortgage interest, and rent or mortgage payments. You can use Form 8829 to determine whether certain expenses qualify.

Note: Note: Using the regular tax deduction method can impact you later if you sell your home. If you sell at a profit, you could pay up to 25% in capital gains tax  on any depreciation deductions you claimed when you filed taxes after May 1997.

What Exactly Can I Write Off on My Taxes if I Work From Home for an Employer?

Working from home for someone else can be convenient but costly. You may have had to shell out for a computer, office furniture, monthly internet costs, and so on. Can you get a tax deduction for those things?

Probably not. Unfortunately, the tax act passed in 2017 axed those deductions for most employees. If you aren’t entitled to a deduction for your expenses, your best bet is to ask your employer to give you a non-taxable reimbursement for those costs.

Exceptions for Some Home-Based Workers

The IRS outlines four categories of employees who can claim at least some deductions for job-related costs of working at home, including:

• Armed Forces reservist
• Qualifying performing artists
• State and local government officials compensated on a fee basis
• People with physical or mental disabilities that limit their ability to work

There’s also an exception for teachers that allows them to deduct up to $300 for classroom supplies.

Are My State Taxes Different With the Tax Cuts and Jobs Act?

As a remote worker, you still pay state tax on your income. The income from your job will be reported to you on a W-2 in January, and you’ll report that income on your tax return. Nothing there has changed, at least for the federal tax return. But you may have special tax issues to deal with when you file your state income tax return, unless you live and work in a state that has no state income tax. These states include:

• Alaska
• Florida
• Nevada
  
• South Dakota
  
• Tennessee
  
• Texas
  
• Washington
  
• Wyoming
  

Do I Owe Taxes to Both States If I Live in One and Work in Another?

If you live in the same state in which your employer is located, state taxes are pretty straightforward. Most states look to your physical presence in determining whether to tax you. 

However, if you work in one state and live in another, you may be dealing with the income tax rules of two states, not just one. When it comes to remote work, there are a handful of states that go by what’s called the convenience of the employer rule.

What Is the Convenience Rule?

The convenience of the employer rule allows a participating state to tax you on income earned if your employer is based within their borders, even if you aren’t. Which means you could be taxed twice. The rules are complicated, and there are some loopholes, so we recommend speaking with a tax professional if you’re a remote worker for an out-of-state employer. 

The Takeaway

Work from home tax deductions are a great way to lighten your tax burden. But even if you don’t qualify, there are other deductions you can claim to boost your tax refund. You may also qualify for tax credits that can be even more valuable than deductions