Worked Remotely in 2021? Here's What You Need to Know About the Home Office Deduction

Can you write off your home office on your taxes? You may be surprised by the answer.

Before the pandemic began, remote work wasn't super common among salaried employees. Rather, it was an option more typically reserved for the self-employed. Last year, however, a large number of people did their jobs from home because it wasn't safe enough to return to an office due to COVID-19.

If you worked remotely in 2021, you may be wondering if you can claim a home office deduction on your upcoming tax return. Here's what you need to know.

Qualifying for a home office deduction

To be eligible for a home office deduction, you must satisfy these requirements:

• Have a dedicated space in your home used solely for work purposes.
• Have a space in your home that functions as your primary place of work.
• Be self-employed.

Let's break each point down. If you have a room in your home that is strictly an office, then it counts as such. But setting up your laptop on your dining room table doesn't render you eligible for a home office deduction, because that's not the main function of that room.

Furthermore, if you worked from home twice a week last year but went into an office three days a week, then you can't claim a home office deduction. To get that tax break, your home office must be the place you do most of your work from.

Finally, you can only claim a home office deduction if you're self-employed. If you're a salaried worker who was granted the option to work from home due to the pandemic (or even due to your employer wanting to be flexible), you can't take that tax break.

How to claim your home office deduction

Assuming you're able to meet the criteria above, you'll need to know how to claim your home office -- you have two options.

First, you can figure out what you spent on housing and utility expenses and then take a proportionate deduction based on the size of your home office relative to your whole house. So let's say between your mortgage payments, property taxes, utilities, and so forth, you spent $24,000 in 2021. If your office takes up 10% of your home, your deduction will amount to $2,400.

As an alternative, you can use the simplified method, which lets you deduct $5 per square foot of office space up to 300 square feet. For example, if your office is 150 square feet, that gives you a $750 deduction.

The simplified method is the quicker, easier way to take your home office deduction, but it may not give you the largest tax write off. It pays to run both sets of numbers and see which makes the most financial sense.

The home office deduction can be a lucrative tax break -- but only for those who are eligible. Unfortunately, a lot of remote workers may be in for an unpleasant surprise this year when they realize they can't claim their office setups on their taxes. But it's better to find that out now than to erroneously claim that deduction and have your tax return rejected or audited because of it.