With the new limits on property tax and mortgage interest, is it time to rethink the home office deduction? In 2017 and prior years, the benefits of the home office deduction were limited since mortgage interest was rarely limited and taxes never limited. Now that strict limits are in place for both deductions, use of the home office deduction may be a way to shift some expenses subject to the limits. A few things to be aware of:
Regularly and exclusively. These are the magic words for home office. The space must be used exclusively for business. No non-business use is allowed, even in non-business hours. The space must be used regularly for business. It should be your primary place of business where you do recordkeeping, billing, make appointments, order equipment or store supplies.
Employees. Employees can only qualify for the deduction if your employer doesn’t provide you with a local office where you can work. Worse, for the employee, is that this is an unreimbursed employee business expense, which is no longer deductible under new law. If you do have an employer provided office, and use the space for your work as an employee, then it isn’t used exclusively for your side job and wouldn’t qualify.
Recapture. If you qualify for the home office deduction, be aware that the depreciation you take on your home office is recaptured when you sell your house later. Instead of a tax-free sale using the exclusion, you’d have some taxable gain.
If you want to discuss further, please contact our office.