If you qualify for the home office deduction, your home or apartment rent can reduce your tax bill. The home office deduction is available for both employees and self-employed taxpayers. Self-employed taxpayers report the deduction on Form 8829 and employees report the deduction as an unreimbursed work expense on Form 2106.
Your home office can be either an entire room or a part of a room. The IRS doesn't require that you partition a room to use it as a home office, but it must be clear where your home office ends and the rest of your house begins.
Regular and Exclusive Use
To qualify for the deduction, you must have an area in your home that you use regularly and exclusively for work. Exclusive use means that you don't use that space for any personal purpose. For example, you couldn't claim your kitchen if you work at your kitchen table, or your family den if your children also use it to do homework. The IRS also clarifies that a guest bedroom can't be a home office, even if a guest only stays there once a year.
Principal Place of Business
The home office must be your principal place of business. For the purposes of this deduction, principal place of business means that you use your home substantially and regularly to conduct business. The IRS allows you to claim a home office deduction if you meet with clients or do administrative work there, even if you also do work at other locations.
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There's one exception to the principal place of business rule. If you have a free-standing structure -- like a studio, garage or barn -- and you use it for a business purpose like storing inventory, you don't have to meet the principal place of business rule. You do, however, still have to pass the regular and exclusive use test.
Additional Rules for Employees
In addition to meeting the general requirements for a home office, employees must pass a few more tests before they can claim a home office. Employees must be using the home office for the convenience of their employer, and you may not rent any part of your home to your employer.
According to Nolo, you're using the office for the convenience of your employer if it's a condition of employment, it's necessary for the business to function properly or you need it to perform your duties. For example, if you need to work overtime and prefer to take your work home with you, it's not necessarily for the convenience of your employer. However, if your employer requires you to perform work during certain hours when the office is unavailable and closed, you could qualify for the deduction.
Calculating the Rent Deduction
There are two ways to calculate the home office deduction. The first option is to add up all relevant expenses -- such as rent, utilities, home security systems and renter's insurance -- and deduction a portion relative to your home office square footage. For example, say your total home office expenses are $10,000 a year, your home office is 200 square feet and your home is 2,000 square feet. You could deduct one tenth of the expenses, or $1,000.
Alternatively, you could calculate the deduction using the simplified method. Under this method, you multiply the square footage of your home office -- not to exceed 300 square feet -- by $5. For example, if your home office is 200 square feet, your deduction would be 200 multiplied by $5, or $1,000.