The government ordered shut down resulting from the spread of
Covid-19 has resulted in an increased number of employee’s working from home. Many of these employee’s have inquired whether they can deduct expenses for their newly created home offices.
The general rule is that expenses that otherwise might be deductible are disallowed with respect to a “dwelling unit” used by a taxpayer as a residence. However, expenses are allowed for a home office if “a portion of the dwelling unit” is used regularly and exclusively: (i) as a taxpayer’s principal place for any trade or business; (ii) as a place where patients, clients, or customers regularly meet or deal with a taxpayer in the normal course of business; or (iii) in the case of a separate structure not attached to the residence, in connection with a taxpayers business. Expenses attributable to business use may also be deductible if the use of the home is used regularly though not exclusively (i) for storage of inventory, product samples in a taxpayer’s trade or business or (ii) to provide licensed daycare services. The requirement that there be an “exclusive use” of a portion of the dwelling unit is satisfied only if there is no use of that portion of the dwelling at any time during the year that is not a qualifying business use. Further, incidental or occasional use does not qualify and the burden is on the taxpayer to prove that a portion of the residence has been used on a regular basis for business purposes.
However, the Tax Cuts and Jobs Act of 2017 suspended the deduction for miscellaneous itemized deductions that included unreimbursed employee business expenses for tax years 2018 thru 2025. Therefore, employee’s sent home by their employers to work during the pandemic cannot deduct any of their home office expense even if they otherwise would qualify.
