More bad IRS news: If you work from home full-time, home office tax deductions are out

April 1, 2021

Were you planning to deduct all of your home office costs from 2020? Think again: For the year that more Americans than ever worked from home, home office costs are not deductible on taxes. As the IRS explains, “employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home.”

Wait, whaaa?

Sorry to say, but if you spent the last year working from home as a full-time employee, that nifty new standing desk and tippy stool aren’t deductible. You can thank former President Trump: His Tax Cuts and Jobs Act of 2017 paused the home office deduction from 2018-2025.

So before 2018, I would’ve been able to deduct my home office costs?

Yes. It’s called the “business use of home” deduction, and it also includes uses such as daycares.

Who can still take the home office deduction?

Independent contractors, self-employed taxpayers, and gig economy workers can still take it. They must “use a portion of the home exclusively for conducting business on a regular basis, and the home must be the taxpayer’s principal place of business.”

Is this deduction valuable?

Hell, yes. Deducting office equipment is not what makes it valuable. Workers can deduct a percentage of their real estate taxes, rent or mortgage interest, utilities, insurance, and maintenance and repairs. I know! This almost makes up for the racket that is self-employment tax.

What percentage?

The percentage of their home that is devoted to only-business use. It’s a particular boon for people paying high urban rent on small spaces, who can legitimately argue that, say, 41% of the space is office space. There are, however, some complicated depreciation issues involved.

How can I take the deduction in 2021?

Take on some freelance (W-9) work. Here’s how you calculate the deduction.

So I can do a one-day gig as an independent contractor, and deduct a year of home office costs?

Noooooo. The amount you deduct cannot exceed your total income from the freelance business. So if you earn $2,000 teaching hula-hooping on YouTube, your deduction for rent/insurance/hula hoop/etc costs cannot exceed $2,000.