Self-Employed? How to Claim Tax Deductions for Your Apartment Home Office
Are you self-employed and work exclusively from your home apartment? If so, you may be eligible for a tax deduction for a portion of your housing expenses. We’ve created a quick guide to understanding if you qualify and how to complete your tax calculations.
First, there are a few rules to be aware of:
- You cannot deduct more than your net business profit.
- Your office space must be used only for business purposes. If you also eat dinner, entertain guests or fold laundry there, it doesn’t qualify.
- You cannot also have an office in a coworking space or other separate location.
If you’ve met all of the above qualifications, it’s time for some math. The first step is to determine the percentage of your home that is used for business.
If you do have a separate room that is designated as your office, divide the office room by the number of rooms in the home (bathrooms are not included) So, if you have four rooms total in your apartment, the percentage of your home used for business is 1 divided by 4, or 25%.
However, in a studio or a space-challenged one- or two-bedroom apartment, your “office” might simply be a smaller, dedicated portion of larger space. In this case, you’ll measure the total square feet of your office area and then divide it by the total square feet of your apartment. If your office area is ten feet by ten feet, that’s 100 square feet. If your total apartment is 1000 square feet, the percentage of your home used for business is 100 divided by 1000, or 10%.
The next step is applying that percentage to your office expenses to calculate the total amount you can deduct. Eligible home office expenses for an apartment are generally rent, utilities and renter’s insurance. If your monthly rent is $1,500, your annual rent is $18,000. If the percentage of your home used for business is 10%, you can deduct $1,800 for the year. Follow the same formula for your utilities and insurance.
If you own your own business, you’ll likely also have other business expenses that you can deduct, as well, such as computers, software and office furniture. Talk to your tax preparer about eligible expenses and assets to determine your complete deduction and ensure you are claiming all you can on your annual taxes.