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Who Can Claim Work-from-Home Tax Deductions?

Written by prositesfinancialDec 28 • 3 minute read

Millions of Americans began working from home in the early months of the pandemic, and for many, remote work has become the new professional norm. If you work from home, you know that working remotely has its perks, like saving money on commuting costs and spending more time with family. On the other hand, there are probably some office supplies and additional utility bills draining your wallet.

Some people who work from home can take a tax deduction for business-related expenses. In fact, there’s a home office deduction that allows you to claim your dedicated home office space as a business expense. Whether or not you can take work-from-home tax deductions depends on your employment status.

Who Can Claim Tax Deductions When Working from Home?

While millions of people are still working from home, only a subset of them are eligible for the home office tax deduction. At the basic level, if you’re self-employed– that is, if you own a small business, set your own hours, and work for yourself– you’re probably eligible for this deduction. According to the IRS, the tax break is for those who are:

  • Self-employed
  • “Gig economy” workers
  • Independent contractors

Work from home tax deductions allow you to offset some of your “ordinary and necessary” business expenses. These expenses must be common and accepted in your industry and appropriate for your business.

What About W2 Employees Working from Home?

If your employer instituted work-from-home policies when the pandemic struck, you probably spent some money setting up a home office. And maybe you’ve continued to work from home some or all the time. Unfortunately, if you’re a regular W2 employee, you can’t deduct any of your related expenses on your tax return.

These requirements can be confusing, since unreimbursed expenses and home office tax deductions were previously available to US employees. They could deduct itemized expenses that exceeded 2% of their adjusted gross income. However, the Tax Cuts and Jobs Act of 2017 temporarily suspended tax write-offs for these deductions from 2018 to 2025. It’s possible that old rules will go back on the books before 2026.

There’s an exception, though. If you are an employee with a side gig, you can claim a deduction for business expenses if you meet all the requirements. At the basic level, you should have separate spaces and equipment for your self-employed job and your W-2 employee job.

Which Office Spaces Are Eligible?

To claim the home office deduction, you must use part of your home “regularly and exclusively” as your primary place of business. Regular use means you use a specific area of your home or a separate structure on your property for business on a regular basis. This includes a place where you store inventory, meet customers or clients, maintain books, conduct business, or rent out space.

Exclusive use means the space is dedicated to your trade or business. It doesn’t need to be marked off by a wall or permanent partition, but you can’t use it for both personal and business purposes. For instance, your home office can’t be a kitchen table where your family also eats or a guest room with a desk in it. You don’t have to meet the exclusive use requirement if using part of your home as a daycare facility or for the storage of inventory.

You don’t have to be a homeowner to claim the work-from-home deduction. Apartments and condos are also eligible, as are boats, mobile homes, and other similar properties.

If your home office is used regularly and exclusively for business, you may be able to deduct some of your home-related expenses, including property taxes, mortgage interest, rent, utilities, repairs, depreciation, and homeowners’ insurance. It’s a good idea to talk to a tax professional to confirm which deductions you are eligible for.

Bottom Line

Since the 2018 tax reform, work-from-home tax deductions remain for self-employed workers, gig workers, and independent contractors. Employees who work from home cannot claim deductions for their home office costs or unreimbursed employee expenses. However, even W-2 employees may discover that they are eligible for tax deductions they were previously unaware of. It’s always a good idea to consult a tax professional to identify opportunities to save money and make the most of tax season.

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