Expenses for business use of your home are alive and well if you are self-employed!
Beginning in 2018 for employees of a business, the Tax Cuts and Jobs Act of 2017 eliminated the “Home Office” deductions previously deductible on Form 1040 Schedule A – Itemized Deductions. The good news is if you are self-employed and report the activity of your business on Schedule C, the Home Office deduction is still allowed. If you are an S Corporation or LLC it gets a bit more complicated, but the costs are deductible.
There are two methods for calculating the deduction:
Completing Form 8829 requires allocating expenses for mortgage interest, property taxes, insurance, repair and utilities, just to name a few. You must also calculate an amount of allocable depreciation of your home. Then, when you sell your home, a portion of the gain may be recaptured for depreciation taken.
The simplified method allows a deduction of $5 per square foot with a maximum deduction of $1,500 (300 square feet / the equivalent of a room 15 feet by 20 feet). While limited, requires no recapture of depreciation upon sale of the home.