2024 Tax Planning Series: Home Office Deductions in 2024

The after-effects of the COVID-19 pandemic are lingering, and one of the biggest ones is the change in the number of people who work from home. The increase in working from home has many people eyeing additional tax deductions, including a Home Office deduction to reduce the amount of the taxpayer's income. As with all tax laws, they evolve and can be complex, and with the rise in the number of people working from home, the IRS is watching!

Can I Qualify for a Tax Deduction if I Rent?

The home office deduction is a welcome relief for both homeowners and renters. It's not just limited to traditional homes but extends to apartments, condominiums, mobile homes, boats, and similar properties. Other structures on your property, like a garage, studio, barn, or greenhouse, can be included. The only exception is if you use your property as a commercial lodging establishment.

2024 Tax Planning Requirements

There are two basic requirements for the taxpayer's home to qualify as a deduction:

• Having exclusive use of a portion of the home for conducting business regularly, such as a second bedroom converted into an office.
• The home or apartment must be your principal place of business. A taxpayer can also meet this requirement if administrative or management activities are performed at home and there is no other location where they can perform these duties. Therefore, someone who conducts business outside their home but also uses their home to conduct business may still qualify for a home office deduction. An example would be a freelance graphic designer who works from her home office most of the week but occasionally visits clients' offices for meetings or works out of a coffee shop for a change of scenery.

Additional structures on your property (mentioned above) will qualify for the home office deduction if they are exclusively used for business. So, your garage, greenhouse, or barn must be used solely as your office or place of business.

There are two methods to calculate home office expense deduction.

• There is a *simple deduction* of $5 a square foot. The maximum size for this option is 300 square feet, for a total of $1,500.
• The *regular method* is determined by the percentage of the home devoted to business use. Taxpayers with a dedicated room or part of a room to conduct business must determine the percentage of the home used for business activities to deduct indirect expenses.

For example, if your home is 2000 sq feet and your office is 200 sq feet, that is 10% of your home. *Direct expenses* would be office furniture, painting and supplies for your office, software, an office door lock or security system specific to your workspace, etc., can be deducted in full. *Indirect expenses* include mortgage interest, property taxes, utilities (electricity, water, gas, trash collection), HOA fees, homeowners insurance, and repairs would be at 10% using the example from above.

Tax laws are constantly changing. Contact Cambaliza McGee LLP to work with you. We will comprehensively analyze your tax situation to optimize deductions and financial benefits for your business.