The advantage of renting a home rather than purchasing one is that you only have to write a check to your landlord once a month and you’re done. Instead, homeowners are responsible for a slew of additional expenses on top of their mortgage payments, including everything from property taxes to maintenance to repairs and renovations.
It’s possible that you’re wondering if you qualify for any tax breaks because you’re a tenant. Unfortunately, you will not be able to deduct the cost of rent from your taxes in most cases. However, there is a tax break that you may be able to take advantage of that is related to this.
Are you eligible for a tax deduction for your home office?
A home office deduction may be available if you’re self-employed and working out of your rental property. If this is the case, you can claim the deduction on your tax return. Please understand that this option is only available to individuals who are self-employed.
A large number of people have been working remotely during the pandemic, but if you’re a salaried employee, you won’t be eligible to claim a home office, even if you didn’t step foot in your company’s office for the entire year of 2021.
Now, let’s talk about which tenants are eligible to use their home as an office. If you’re self-employed, you can claim a home office deduction if you meet the following criteria:
This is your primary place of business, and you work from home.
You have a dedicated office space in your home, which you use exclusively for work.
For example, suppose you rent a coworking space that you use three days a week but that you also use twice a week to work from your home.
Unfortunately, because your home office is not your primary place of business, you will not be able to claim the home office deduction on your taxes. Similarly, if you work from your kitchen table on a regular basis, the home office deduction will not apply because it is not the primary function of that room.
Consider the following scenario: you rent an apartment and work from there full-time. In addition, let’s assume it’s a two-bedroom apartment, with one of the bedrooms dedicated solely to the purpose of a home office.
That is a situation in which the deduction is possible. To determine how much space your home office will take up in your rental, you’ll need to measure it. You can then claim a portion of your rent as a tax deduction on your income tax return.
Consider the following scenario: your apartment is 1,200 square feet, and your home office takes up 300 square feet or 25% of your total living space. If your rent is $1,600 per month, you can deduct $400 for your home office expenses.
Apart from that, if you have renters insurance, you may be able to claim a tax deduction for a portion of your premium (though this may not be a significant amount given that renters insurance is generally not expensive).
Another option is to use the simplified method, which allows you to claim $5 per square foot of office space up to 300 square feet, with a maximum claim of $300 square feet. In this instance, you would be eligible for a deduction of $1,500.
If your rent isn’t too expensive, it might make sense to file your taxes using the simplified method; however, it’s best to run both sets of numbers to be sure.
Understand the tax regulations.
Despite the fact that renting a home does not provide you with many options when it comes to saving money on taxes, you may still be able to reap some benefits. In the event that you are unsure of which tax breaks you qualify for, it is wise to consult with an expert who can guide you through the process.
Particularly if you are new to self-employment and are claiming certain deductions for the first time, this makes sense.