Pros and Cons of Taking a Home Office Deduction

Man working at laptop in home office
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If you work from home and you meet the requirements to take a home office deduction, it might seem like a no-brainer to take the deduction on your federal income taxes. Fewer taxes are good, right?

But be careful. A home office deduction is not always in everyone's best interest. Consider the pros and cons of a home office deduction. And if you have any doubts, consult a tax specialist for your specific circumstances.

Key Takeaways

  • A home office deduction allows you to deduct expenses related to your home office if it is your primary place of business.
  • Your employment status can impact whether or not you qualify for this deduction.
  • This deduction could also impact the capital gains tax you can exclude when you sell your home.

Here are some things to consider before taking a home office deduction on your income taxes.

Employment Status Affects Your Home Office Deduction

It makes a difference whether you are an employee versus a self-employed individual. You can no longer file for this deduction if you are an employed telecommuter.

If you are self-employed, you're eligible for this deduction whether you rent or own your home, as long as it is your primary place of business.

Is It a Profit or Loss With Your Home Office Deductions?

If you are an independent contractor, remember that your home office may not create a loss for your business. That means that independent contractors who are filing a Schedule C must first calculate whether their business has a profit or a loss. Then they can subtract the home office deduction, as long as it does not create a loss.

Your Deduction Could Change If You Sell Your Home

Before you ever take a home office deduction, you need to think about the long-term possibilities.

When you sell your house, after having claimed the home office deduction, the deduction can affect your capital gains taxes. The capital gains tax exclusion allowed from the sale of your primary residence could be reduced by the amount that you have claimed for depreciation on your home office.

Note

If you have always used the simplified home office deduction, which was instituted in 2013, this does not apply. 

The Possibility of an IRS Audit

There is a belief that taking a home office deduction possibly increases your chance of an IRS audit.

Note

Of course, not everyone who files a Schedule C also takes the home office deduction. To be safe always keep good records of all business expenses including those for your office.

The Balance's tax expert William Perez thinks this bit of conventional wisdom may not be as true as it once was, though he notes that filing a Schedule C may increase your chance of an audit.

Frequently Asked Questions (FAQs)

How much can I claim for my home office?

You can use the regular method and deduct direct business expenses in full. However, indirect expenses can only be deducted as the percentage of your house that is the home office.

You can alternatively use the simplified method, which allows you to deduct "$5 per square foot of the portion of the home used for business," according to the IRS.

I work from home. What can I deduct?

The Tax Cuts and Jobs Act of 2017 suspended the home office deduction for employees through 2025. So unless you are self-employed, you can not claim this deduction even if you work from home.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "IRS Reminds Taxpayers Of The Home Office Deduction Rules During Small Business Week."

  2. IRS. "Home Office Deduction."

  3. IRS. "Topic No. 509 Business Use of Home."

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