In the United States, a home office deduction is a tax deduction that some taxpayers may be eligible to claim in order to reduce their taxable income. If a taxpayer uses a portion of their home exclusively for business purposes, they may be eligible to claim a home office deduction. Eligibility for this income tax deduction is not reserved for only the self-employed, but may also be extended to the employees of others under certain conditions.
The defining criteria for home office deduction eligibility is that the part of the home used to calculate the deduction must be used both regularly and exclusively as the taxpayer's principal place of conducting business. It may also be defined as the portion of the home the taxpayer uses to meet with clients, patients, or customers in the normal course of conducting a trade or business. The dollar amount that can be deducted from taxable income for a home office is dependent on the percentage of the home used for business. If a separate structure, such as a garage not attached to the house, is used regularly and exclusively for business, expenses related to it can also be deducted. The deduction may be limited, however, if gross income from the business is less than total business expenses.
If the taxpayer qualifies to deduct the business use of the home, certain expenses may be included as part of the total deduction. These expenses include, but are not limited to, the business portion of rent, mortgage interest, insurance, real estate taxes, utilities (gas, electric, telephone, water, internet), maintenance supplies, as well as painting and other repairs. For persons running an in-home daycare center, or for those storing inventory or samples, special home office deduction rules apply.
If a taxpayer is not self-employed, but uses a portion of their home for the regular and exclusive use of conducting their employer's business, the taxpayer may also be eligible for a home office tax deduction. In this case, the use of the home for conducting the employer's business must be for the convenience of the employer, not the employee. For example, if an employer requests that an employee work from home in order to save office space or to lower the employer's expenses, the employee may qualify for the home office deduction. However, the employee simply using their home to catch up on paperwork after hours — regardless of the fact that they may indeed use a given space regularly and exclusively for that purpose — does not qualify them to take a home office tax deduction.
IRS Publication 587, "Business Use of Your Home," is available at the IRS website for further information.