Even with the pandemic mostly behind us, a lot of Americans are still working from home. A 2023 survey by the Pew Research Center found that about a third of U.S. workers who were able to do their jobs from home worked remotely full time.
If you worked remotely in 2023, you may be wondering if you can get a tax break for doing so. The IRS has strict rules for claiming a home office, though. Here's what you need to know before filing your tax return.
Who can claim the home office deduction?
Prior to the Tax Cuts and Jobs Act of 2017, traditionally employed workers could deduct unreimbursed job expenses above 2% of their adjusted gross incomes. That included home offices. But the Tax Cuts and Jobs Act suspended business deductions for employees for tax years 2018 through 2025. That means if you're a W-2 employee, you can't deduct your home office on your federal tax return, though some states allow a deduction.
Under the current rules, you can only deduct your home office if you're self-employed and use the space exclusively as a place of business. If you're a W-2 employee but you also do freelance or independent contractor work on the side, you may be able to claim the home office deduction if you use part of your home exclusively for that work.
The space doesn't necessarily need to be used for office space. For example, if there's an area of your home that you use exclusively to meet with customers or store inventory, you're allowed to deduct expenses related to that portion of your home.
The IRS is pretty strict about the word "exclusively" here. For example, if you have a room that you usually use as office space but it also serves as a guest bedroom, you're not allowed to take the deduction.
There is an exception if you run a daycare from your home, though. The IRS doesn't require exclusive use of a space used for daycare, but it does require that you calculate the percentage of time you use the space for such purposes.
What home expenses can you deduct?
You can deduct quite a few expenses pertaining to the portion of your home that's used for business purposes -- but only that portion. For example, if you have a 1,000-square-foot home and the space you use exclusively for business purposes is 100 square feet, you'll most likely be able to deduct 10% of your overall home expenses for the following:
- Rent
- Mortgage interest
- Real estate taxes
- Utilities
- Home insurance
- Maintenance and repairs
- Casualty losses
- Depreciation
Note that you can't deduct expenses that are unrelated to the part of your home used for business. For example, the IRS specifically states that deducting lawn care costs or expenses related to painting a different part of your home isn't allowed.
You don't need to have a separate room that's used only for business to take the tax deduction, but it needs to be a space that's dedicated solely to business purposes. For instance, if you have a desk area in your living room that you only use for business, you could measure the square footage of that space. Then, you'd deduct expenses related to that portion of your home.
Does the IRS consider a home office suspicious?
One common concern about deducting home office space is that it might look suspicious to the IRS and could trigger an audit. But the IRS won't automatically audit you just because you claimed a home office on your tax return.
One potential red flag for the IRS is if you deduct an especially large portion of your home as a place of business. Deducting 10% of your home space may not be suspicious, but you could raise eyebrows if you claim that 50% of your home is office space.
If you're claiming a home office space on your tax return, be sure to keep careful records of any expenses you incur. Measure the space carefully to be sure that the percentage you're claiming as business space is accurate. That way, if you get audited, you can show that your home office deduction was 100% legitimate.
