If you worked from home in 2022, you may be wondering if you qualify for the home office deduction, which offers a tax break for part of your home expenses.
Remote work was an option for 10.6% of workers in 2022, with higher percentages among tech, legal and other occupations, according to a December report from the U.S. Bureau of Labor Statistics.
But most employees aren’t eligible for the home office deduction, according to Brad Sprong, national tax leader of KPMG Private Enterprise. You may, however, qualify as a contractor or with a side business, with income reported via Form 1099.
Your workspace must meet IRS guidelines
Rob Burnette, CEO of the Outlook Financial Center, said your workspace must meet certain IRS guidelines to qualify for the deduction.
Based on the square footage of a specific area in your home, you must use your “home office” exclusively for work, he said. And the IRS expects it to be the principal place for your business, used regularly.
“It doesn’t need to be a room with four walls around it,” Sprong said, noting that it could be a designated 200 square feet in your home. But “it would be hard to argue that your kitchen table is exclusively for business,” he added.
How to calculate the home office deduction
There are two ways to calculate the home office deduction: the “simplified option” and the “regular method,” according to the IRS.
The simplified option uses a standard deduction of $5 per square foot of the portion of your home used for business, capped at 300 square feet, or $1,500.
The regular method, which is more complicated, uses the percentage of your home used for business, including actual expenses, such as part of your mortgage interest, insurance, utilities, repairs and depreciation. The calculation happens on Form 8829.
“The simplified method is my favorite way because most people don’t have the records or enough deductions to make the regular method work,” Burnette said. Typically, he calculates it both ways for new clients to see which option provides the bigger tax break.
Of course, some taxpayers may get a bigger tax break by using the regular method. “While it’s more cumbersome, it’s much more beneficial because the simplified option is capped at $1,500,” Sprong said.
But when using the regular method, it’s important to have documentation to show proof of your deductions. “If you’re drawn for audit, it’s an area of focus for the IRS,” he warned.