I'm running my business from my apartment during the Covid-19 crisis. How much of my rent can I deduct on my taxes? Are there any other things I should be thinking about claiming as deductions as well?
You may be able to claim a home office deduction, our experts say, but you have to meet specific IRS requirements to do so.
Shelter-in-place orders have many Americans working from home during the Covid-19 pandemic, and the IRS has extended the deadline to file 2019 taxes to July 15, so it makes sense to think about potential deductions.
Of course, this work-from-home period would apply to your 2020 taxes, so you have time to work out the details, but it helps to know how to qualify for a home office deduction.
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This deduction, for those who work from home, is calculated based on the square footage of the space being used for business, divided by the total square footage of your house or apartment, says Brett Perkins, managing partner of TPRF CPAs. The resulting percentage ordinarily ranges from 12 to 20 percent and is applied to your mortgage interest or rent; utilities, which include internet; property taxes; and homeowner's or renter's insurance.
But in order to take advantage of this, your home office has to meet certain requirements.
"To take a business deduction, a taxpayer must use part of his or her home under one of the following situations: An area in the home is used exclusively and regularly as the taxpayer's principal place of business, or is exclusively and regularly used to meet clients or customers in the normal course of business, or is used on a regular basis for storage of inventory or product samples," Perkins says.
The "exclusive use" requirement can be difficult for many taxpayers to meet, especially those who are only working from home during this crisis, likely in a room not intended to be an office. This IRS flow chart can help you determine whether you meet this requirement.
"You cannot use a space like a den for business during the day and then use it to watch TV at night and still take the deduction," Perkins says. "The only exception is related to inventory or homes used as a daycare facility."
But if you can manage to designate a space to function solely as your office area, and are using it as such for the duration of the Covid-19 pandemic, you'll likely be able to claim that as a deduction when you file your 2020 taxes.
Your apartment insurance policy may also include coverage for working from home.
"See if your policy covers any property you are using to conduct business from home," says Jeffrey Schneider, president of Gotham Brokerage (a Brick Underground sponsor). "Items that you would ordinarily have, like a laptop or PC or monitors, would likely be covered. But high-end add-ons like commercial grade scanners, cameras, or printers might be an issue."
And if you find you're not eligible for this deduction, there may be others you still qualify for. Take a look at our guide to tax refunds for NYC owners and renters.
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