Can You Take a Home Office Tax Deduction Due to COVID-19? A Reality Check

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On Feb 18, 2021
Listed in Real Estate News

By Margaret Heidenry

Feb 17, 2021

2020 was the year of WFH: Working from home became a reality for countless Americans, as company offices closed down to curb the spread of COVID-19. And, as the time nears to file your 2020 taxes, you might be wondering: Does your home office add up to any tax deductions for you?

It’s a logical question: Since most WFH warriors shell out of their own pocket for internet, printer ink, and equipment upgrades if their laptop poops out, it’s understandable to hope you can recoup some of these expenses by claiming the home office tax deduction on your taxes.

But beware: The home office deduction has changed a lot over the years, so whether you can claim it will depend greatly on your circumstances. Here’s more on exactly who can claim a home office tax deduction—and who can’t—as well as how much certain people can save. For people who can’t claim this deduction, we’ve found some clever tax deductions to bring up with your boss that could still save you money—for now, and going forward as long as your WFH life continues.

Who can claim a home office tax deduction?

Even though the name of this tax deduction has the phrase “home office,” this doesn’t mean everyone who works from home can claim it, explains Paul Sundin, a CPA and a tax strategist at Emparion.

In a nutshell, the home office tax deduction can be claimed only by self-employed individuals—meaning freelancers, small-business owners, and anyone who works for themselves. That said, these workers still must meet certain conditions. (Read our next section for more details.)

What qualifies as a home office?

There are very strict rules on what constitutes a dedicated home office. To claim this deduction, you must use part of your home exclusively for business. That means an office that doubles as your bedroom or an occasional guest room does not qualify.

That said, an open area with a desk that’s used only for work qualifies just fine. So if your desk is in an open floor plan, simply measure the space you use for your office. And if you have an entire room dedicated only to work, measure the size of the room.

How to take a home office deduction

The easiest way to claim the deduction is to deduct $5 per square foot, up to 300 square feet, of office space, which amounts to a maximum deduction of $1,500.

If you think your deduction is worth more than $1,500, you can also try the more complicated method of tracking all the costs of your home office. Then allocate those expenses based on the percentage of the home you use solely as a home office. So if your office occupies 10% of your home’s total square footage, you can deduct 10% of what you pay to keep it running.

Here’s how that breaks down, according to Ben Reynolds, CEO and founder of Sure Dividend:

  • Business equipment: The IRS considers tangible equipment such as furniture, computers, electronic devices, and office machines as eligible.
  • Internet: You can deduct the amount used for business purposes. If you use your internet 20% of the time for work, you can deduct that percentage of your total internet bill.
  • Home expenses: These include rent, mortgage interest, real estate taxes, homeowners insurance, home repairs, electricity, and gas. If your home office takes up 10% of your home’s total square footage, you can deduct 10% of these expenses.
  • Depreciation: Computers and most office equipment can be depreciated over five years, while office furniture can depreciate for seven years. You have the option to deduct the full amount of the depreciation or gradually subtract the a portion of the total value each year.

Can W-2 employees claim a home office tax deduction?

If you are a W-2 employee, you cannot claim a home office tax deduction.

Why not? While in the past employees could claim a deduction for employment expenses over a certain percentage of their income, the 2018 Tax Cuts and Jobs Act eliminated these deductions from 2018 to 2025. The act now prevents full-time, W-2 employees from deducting home office expenses on their 2020 taxes even when they worked from home more than they did in the office, says Reynolds.

There is one small exception to keep in mind: If you’re a W-2 employee with a side hustle, you can deduct eligible home office expenses for that particular side gig.

Are there any home office tax deductions W-2 workers can claim?

Unfortunately, most employees working from home can’t claim any federal tax deductions connected to being a remote worker during the coronavirus pandemic, says Sundin.

However, full-time remote employees who live in Alabama, Arkansas, California, Hawaii, Minnesota, New York, and Pennsylvania have a unique option for their state tax returns.

“W-2 workers living in these states can deduct business expenses their employer didn’t reimburse them for,” says Reynolds. These can include a portion of your rent, mortgage interest, internet/utility bills, a new computer monitor, desk, or even an ergonomic office chair. Just be aware the deduction may not cover all of your 2020 work expenses 100%.

The exact rules vary from state to state, so check in with a local tax professional. You can also find your state’s government website complete with links to tax information explained in greater depth at the IRS.

WFH tax deductions companies can take—then reimburse you

Even if you’re a W-2 employee who can’t reap any tax benefits from a home office directly, there are still some ways you can save money—by asking your employer to take some tax breaks on your behalf, then reimbursing you.

“There is something called Section 139 where the employer can reimburse pandemic costs for employees, at their discretion, tax-free,” says Jackie Meyer, CPA and founder of The Concierge CPA and TaxPlanIQ. “You can ask for reimbursements or special stipends directly from your employer.”

Section 139 defines those expenses as “reasonable and necessary” costs incurred by employees due to the pandemic. This can include everything from costs associated with establishing a home office (buying a desk) to maintaining a home office (upgrading to a faster internet). These payments are fully deductible for companies, offering a win-win situation for both employer and employee.

You can also ask if your company would consider an “accountable plan” for the 2021 tax year. Here’s how an accountable plan works: Instead of being paid $50,000, your employer could pay you $45,000 in wages plus a $5,000 home office expense reimbursement, making your salary the same—while saving you on taxes.

Finally, business meals from restaurants (including takeout) may now be deductible under the Consolidated Appropriations Act 2021, signed into law on Dec. 27, 2020. While still subject to clarification by the Treasury and IRS, it seems that food and beverages provided by an employer for virtual or business meetings will be 100% deductible. An employer could also deduct food provided for employee virtual happy hours.

So this might be a way to get your employer to start covering more of your WFH food if you order in, says Meyer. Simply point out to your employer working meals are a great tax deduction for them, and ask them to put delivered meals on their tab.

Margaret Heidenry is a writer living in Brooklyn, NY. Her work has appeared in the New York Times Magazine, Vanity Fair, and Boston Magazine.
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