Since the pandemic, I’ve gotten more questions about the office in home (OIH) deduction than I’ve gotten in years. It makes sense – most people have spent the better part of last year working from home and now folks like you want to know how much this could save them in taxes. Let’s get right to the nitty gritty.
If you actually use a part of your home, like a room for your office, to run your business, then there’s good news. The IRS may allow you to enjoy some home office tax write-offs like utilities, real estate taxes, associated mortgage or rent, repairs, and maintenance, among others. You’re probably wondering…
How do I know if I qualify? If you answer yes to all of these, then you can use the home office deduction.
✔️Are you self-employed? If you are working for The Man from home a.k.a. you have an employer, you are not qualified. Working from home can only help you save taxes if you are self-employed.
✔️Is this your permanent stay? It doesn’t matter whether you own the home or rent it, whether it is a condo or houseboat, you are eligible for the deduction. However, temporary lodgings like hotels don’t count.
✔️Does it fall under exclusive use? Simply put, you must dedicate a particular portion of the house exclusively for the business. Unfortunately, you can’t use multi-use rooms like a dining or living room as a write off.
✔️Do you use this space regularly? The allotted space must be used regularly for the specified business. Oh, if you work in the home space once in a blue moon? No exemption for you dear.
Yayyy I qualify, now what?
I like to apply the regular method to figure out the OIH deduction. Why? Because 9 times out of 10, it garners a larger tax savings than the simplified method which caps the deduction at just $1,500.
Using the regular method, the OIH deduction is based on the portion of your working space. Let’s say you use a portion of a space (like an empty bedroom you turned into your office space), which adds up to about 3/10th of the space in your entire home.
That would mean that 30% of ALL home expenses like mortgage, property taxes, insurance and utilities will be deducted. Additionally, home office expenses that are specific to the home office like repairs made to the office space can be deducted 100% because it is an expense directly related to the office.
Does that make sense? Are you taking the OIH deduction on your tax returns this year? Hit REPLY and let me know!