If you worked remotely during 2024, you might be considering the home office deduction. However, experts warn that qualifying for this tax break might be trickier than you anticipate.
A ZipRecruiter survey conducted in September and October, which involved 2,000 employers, revealed that only 7% of companies allowed full-time remote work in 2024, a notable drop from 21% in 2023. Nonetheless, about 40% of businesses are still open to hybrid work setups.
If you’re a W-2 employee, meaning your employer deducts taxes directly from your paycheck, you won’t be able to claim a tax deduction for home office expenses in 2024. This insight comes from Malcolm Ethridge, a certified financial planner and managing partner at Capital Area Planning Group.
Prior to 2018, W-2 employees could deduct certain unreimbursed job-related expenses, including home office costs, through "miscellaneous itemized deductions." However, this benefit was put on hold until 2025 due to tax cuts enacted under President Trump in 2017.
For those who are self-employed or work on a contractual basis, there’s still a chance to claim the home office deduction for 2024, whether you rent or own your home. Ethridge, who is also an enrolled agent, explains that qualifying requires a dedicated space used "regularly and exclusively" for business, as stipulated by the IRS. This space can be a separate room within your home or another structure on the property.
Calculating the Home Office Deduction
The IRS provides two methods for calculating the home office deduction: the "regular method" and the "simplified option."
The "simplified option" offers a flat rate of $5 per square foot of home office space, with a limit of 300 square feet, resulting in a maximum deduction of $1,500.
On the other hand, the "regular method" allows you to deduct actual expenses based on the portion of your home used for business. This can include parts of your mortgage interest, insurance, utilities, repairs, and potentially depreciation, which considers the decrease in your home’s value over time.
According to CFP Neil Krishnaswamy, president of Krishna Wealth Planning in McKinney, Texas, while this method can be more complex, it might result in "pretty substantial savings" in certain situations.
Ethridge cautions that using the regular method could lead to "depreciation recapture" when selling your home at a profit. This situation might trigger taxes on the depreciation that was or could have been claimed, which can be quite a hassle.
Experts emphasize the importance of diligent record-keeping regardless of whether you choose the simplified option or the regular method. Failing to maintain proper documentation could result in the deduction being denied if the IRS conducts an audit.
