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Year-End 2018 Taxes And Home Office Deductions


Qualifying for a home office deduction became more difficult in 2018.  The Tax Cuts and Jobs Act, which kicked in for tax year 2018, no longer allows taxpayers to claim a portion of their home as a deduction if they are someone's employee.  If they are self-employed, there's no problem.  Listed below is how the rules have changed.


For years, taxpayers could deduct qualifying home office expenses provided they kept a dedicated space in their home used exclusively for business.  It couldn't double as the family den, for instance.  Even if they conducted business outside the house, they could take the write-off, if they used their home office to conduct business regularly.


Until 2018, working for an outside employer was okay provided the taxpayer met certain tests.  The big one, under the old rules:  Business use must be for the convenience of their employer, and not just to make life easier for the taxpayer.  That's gone!  If the taxpayer is employed by their own company, they can still deduct their home office expenses, but they no longer are entitled to the deduction if they are an employee of a company they don't own.


Should a taxpayer still qualify for the home office deduction, expenses associated with using the portion of their dwelling used as a workspace are deductible.  The taxpayer can then deduct a portion of their home expenses, such as for mortgage or rent, insurance, electricity and furniture, not to mention a dedicated business phone line and other expenses. 


The taxpayer can use one of two methods to figure out how much they can deduct, choosing whichever provides the taxpayer the best result.  With the first, the taxpayer can figure out how much their home office is as a percentage of their entire home.  Therefore, if the office is 300 square feet and the taxpayer’s house is 3,000 square feet, they can write off 10% of home-oriented costs (300 divided by 3,000).


With the second method, which is simpler, the taxpayer gets $5.00 off per square foot, up to a 300 square-foot maximum.  Therefore, for the 300 square-foot office, the taxpayer can deduct $1,500 ($5.00 times 300).


It's unlikely losing this tax break will make most people quit their job and become self-employed but it's just tough luck for employees who no longer can take advantage of the tax break. Qualifying for a home office deduction can result in income tax savings annually if done properly.


Please note that the reader should discuss all strategies stated above with their accountant and/or legal advisor before implementing any of the strategies.


Legend Financial Advisors, Inc.® (Legend) is not a tax or legal advisor.  It is Legend’s intention to merely present ideas and strategies to readers to discuss with their own tax and legal advisors or in conjunction with Legend’s advisors.

©2018 Advisor Products Inc. All Rights Reserved.

©2019 Legend Financial Advisors, Inc.®. All rights reserved.