In rare situations, an employee may be able to apply a home office deduction to part of their home. This is much more complex than claiming a home office deduction as the owner of a business. You must meet the same requirements that a business owner would meet, in addition to passing the convenience of employer test.
Qualifying for the Basic Home Office Deduction
Anyone who wants to claim a home office deduction, including business owners, must use part of their home exclusively for their work on a regular basis. This means that they have dedicated a certain area of their home to business use, rather than any personal use. Mixed-use areas do not qualify for the deduction.
Also, anyone who wants to claim the deduction must use their home as their principal place of business, or they must conduct administrative work at home. If you are an employee, you may face difficulties in showing that your home is your principal place of business unless your employer allows you to work from home most of the time. If you do your most important work at your employer’s office, or if you spend more than half of your time at the office, your home will not qualify as your principal place of business. However, you may be able to meet the administrative work requirement if you handle administrative or management tasks in your home and do not handle those tasks anywhere else. These tasks might involve keeping records, handling bills, ordering supplies, or writing reports, among other examples.
If you use a structure other than your home exclusively and regularly for your work, you may be able to apply the home office deduction to this structure. You must not use the structure for any personal purposes, but you do not need to make it your principal place of business, and you do not need to use it on a daily basis.
Meeting the Convenience of Employer Test
In addition to meeting the basic requirements, you must be able to show that your home office is not just for your convenience but instead for the convenience of your employer. There are three main ways to meet this test. A home office will qualify if it is a condition of employment, necessary for you to perform your duties effectively, or necessary for the employer’s business to function effectively.
If you simply prefer to work at home or feel that you are more productive at home, this is not enough to meet the convenience of employer test. On the other hand, if your employer requires you to work outside business hours when the office is closed, you may be able to claim the home office deduction because you are required to work at home. Some businesses do not have an office or do not have an office that can accommodate all of their employees. In these situations, an employee is more likely to meet the convenience of employer test.
Since most employees cannot meet all of these requirements, they may want to ask their employer to reimburse them for expenses related to a home office. If the employer agrees, these costs will not count as taxable income. Read more here about working out a reimbursement arrangement with your employer.