Who is eligible for the home-office tax deduction on their 2021 tax return?

Millions of Americans began working remotely or from home during the coronavirus pandemic.

In 2021, others chose to take control of their careers and start their own businesses, joining the growing trend of entrepreneurship during the "Great Resignation."

But who is able to claim the home-office tax deduction?

Individuals who work from home and are self-employed may be eligible for a tax break, while those who receive a W-2 tax form from their employer, regardless of whether they work remotely or not, do not qualify.

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If you're no longer a 9-to-5 worker, you can claim the home-office deduction, which is one of the largest deductions available to those who work from home, according to Sheneya Wilson, CPA and founder of Fola Financial in New York.

Who can claim the deduction

Although millions of Americans worked from home in 2021 due to the ongoing coronavirus pandemic, there are certain eligibility requirements for the home-office deduction.

Those who are self-employed, gig workers or independent contractors are typically the ones who receive a tax break, while those who work for a company and receive a W-2 are not eligible.

According to the IRS, employees who receive their pay solely from one employer are not eligible for the home-office deduction, even if they are currently working remotely.

The Tax Cuts and Jobs Act of 2017 prohibited employees from claiming the home-office deduction from 2018 to 2025.

In order to qualify for the home-office deduction in 2021, taxpayers must use a portion of their home or a separate structure on their property as their primary place of business. This includes a location where they meet with clients or customers, conduct business, store inventory, or offer daycare services.

According to the IRS, eligibility for the deduction is not limited to homeowners; apartments, mobile homes, boats, and other similar properties are also eligible.

You may be able to claim a deduction for part of the year if you left a 9-to-5 job, started your own business in 2021, and use your home as your primary office space, according to Wilson.

How the tax break works

There are two ways eligible taxpayers can calculate the home-office deduction.

You can receive up to $1,500 in tax credits for your home office, with a maximum of $5 per square foot for the first 300 square feet.

To claim a deduction for using a home office solely for business purposes, you must prove that it is necessary for your work and cannot be used as a guest room with a desk. The responsibility of proving this claim lies with the taxpayer, so if audited, you will need to provide evidence to the IRS.

Keeping track of all actual expenses is more complex in the standard version of deduction for a home office. You can write off 100% of certain expenses, such as repairs to the space.

You can deduct a portion of your home expenses based on the size of your office. For instance, if your home office is 10% of your entire living space, you can deduct that much from the costs of mortgage, rent, utilities, and some kinds of insurance.

Determining eligible expenses for business use of your home can be simplified with the use of IRS Form 8829.

Adam Markowitz, an enrolled agent and vice president at Howard L Markowitz PA, CPA in Leesburg, Florida, stated that people with larger homes may not receive as much using this calculation method. To determine which method yields a larger deduction, individuals should switch methods annually and calculate both.

If you aren’t eligible

Although remote workers may feel left out, the home-office deduction typically does not result in significant savings for those who claim it.

According to Markowitz, the $1,500 maximum for simplified deductions translates to approximately 35 cents for every dollar spent by most taxpayers, resulting in a $525 tax write-off.

Selling your home in the future could be more challenging if you own a home office, as depreciating its value could lead to a tax event.

If you're eligible for the home-office deduction, it's still worth taking.

Markowitz advised that if you are eligible and the government will provide the funds, you should accept it.

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