In 2020, we shared the latest home office deductions information in regard to the shift to remote work caused by the pandemic. Two years later, we wanted to share an update to help you prepare for your 2022 taxes.
What has Changed Since 2020?
Who qualifies for a home office deduction has not changed. Only self-employed individuals who work from a home office can take advantage of this deduction. How the deduction is calculated has been the same since 2013.
While this deduction hasn’t changed, it bears repeating how to take advantage of this deduction.
How to Calculate the Home Office Deduction
According to the IRS, you have two options to calculate the deduction: the regular method and the simplified method.
The Regular Method
Using the regular method, you calculate the deduction by determining the percentage of the space that is dedicated solely to business use.
Direct business expenses are fully deductible. This includes updates made only to your home office, such as:
- Installing flooring
- Making repairs
Indirect expenses can be partially deductible. This includes costs associated with your entire home:
- Property taxes
- Mortgage interest
- Casualty losses
- Homeowner’s or renter’s Insurance
- Maintenance and repairs
The Simplified Method
Using the simplified method, you can deduct a flat rate per square foot of the space dedicated to your business. For tax year 2022, that’s $5 per square foot with a maximum of 300 square feet or $1,500.
Remember: Your calculation must focus on the space dedicated to your business, not your entire home.
How to Choose Your Deduction Method
You can change your deduction method each year to maximize the deduction – and you don’t need a specific reason in order to do so.
It’s best to calculate using both methods and then choosing to use the method that will help you save the most money. Of course, this means keeping all of your receipts and tracking your expenses, which you should be doing anyway.
What Spaces are Included in the Home Office Deduction?
A space must regularly and exclusively be used for your self-employed business in order to take advantage of this write-off.
This includes your:
- Mobile home
This does not include hotels or temporary residences. It also does not include any sleeping area.
If you run a daycare out of your home, the space you use for your business does not need to be exclusive to the business. This includes daycares for children, the elderly, and individuals who are unable to care for themselves for mental reasons. You also need to have a license or approval under the state in which you reside – unless you have received an exemption.
If you use your home to store business inventory, such as product samples, the space you use for your business may not need to be exclusive to the business.
In order to meet the requirements for this exemption, you must:
- Sell retail or wholesale products
- Keep inventory or samples in your home
- Not have any other business location other than your home
- Store items in an area that is suitable for and dedicated to storage
- Regularly store business items in this area
What if You Have a W-2 Job and a Side Hustle?
If you have a full-time job where you work from home and you also own your own small business where you work from home, you may be able to take advantage of this deduction. The key is to have separate spaces for each job.
If you use the same space for both your job and your business, you cannot take advantage of this deduction. For example, if you are a graphic designer by day who uses the same computer and home office space to run your Etsy shop where you sell digital assets, you cannot get this deduction.
But if you use a home office for your job and a workshop for your wood carving side hustle, then you can use the deduction for your workshop.
Take Advantage of the Home Office Deduction for Tax Year 2022
Before you speak to your tax professional about taking advantage of the home office deduction, make sure you do these tasks:
- Save all of your receipts, especially if you want to use the regular method.
- Look into the pros and cons of using the home office deduction instead of taking advantage of avoiding capital gains tax if you plan on selling your home after living there for at least 2 years.
- Look into the details regarding the depreciation of your home in relation to this deduction.
Ready to start saving money? Sign up for a free eFile360 account to file your 1099s, 1098s, W‑2s, and Affordable Care Act forms.