Tax Savings if You're Working From Home
Written by Robin Taub
Tuesday, September 15th, 2020
If you work from home, you may be able to deduct a portion of certain costs that relate to your home work space when you file your 2020 personal tax return. Although you don't need to file until April 30, 2021, being aware of the information you need now means you won't be scrambling when tax time rolls around.
Are You Eligible to Deduct Work-Space-in-the-Home Expenses?
If you're a salaried employee, you may be able to deduct expenses you paid in 2020 for the use of a work space in your home if you had to pay them under your employment contract. The expenses have to be used directly in your work, and your employer must not reimburse you for these expenses.
You also have to meet one of the following conditions:
- The work space is where you mainly (more than 50% of the time) do your work
- You use the work space only to earn your employment income, and you use it on a regular and continuous basis to meet clients, customers or others in the course of your employment duties
What if you had to work from home more than half the time, during just part of the year? Although the tax law isn't entirely clear, you may be able to claim these expenses if your employer required you to work from home more than half the time during that period.
What Expenses Can You Deduct?
You can deduct the portion of certain costs that relate to your home work space, like:
However, if you didn't work from home for the entire year, make sure you only claim home office expenses for the period in 2020 when you had to work from home.
Work-space-in-the-home expenses are limited to the amount of net employment income you earn. This means you can't use home work space expenses to create or increase a loss from employment. If you can't deduct all your work space expenses in the year, you can carry them forward and deduct them the following year, as long as you're reporting income from the same employer.
How Do You Calculate It?
You have to use a reasonable basis to prorate these expenses, like the square footage of your work space divided by your house's total finished area. If you spent money to maintain the work space only, you may be able to deduct all of those costs without prorating them.
What Documentation Do You Need?
Your employer must complete and sign a T2200, Declaration of Conditions of Employment. Keep this form with the records of your expenses. Report these expenses on a T777, Statement of Employment Expenses form.
If you're self-employed and work from home, you can deduct expenses for the business use of a workspace in your home if you meet one of the following conditions:
- It's your principal place of business
- You use the workspace only to earn your business income, and you use it on a regular and ongoing basis to meet clients, customers or patients
In addition to the expenses described above for employees, you can also deduct part of your property taxes, mortgage interest and capital cost allowance (depreciation for tax purposes).
Use a reasonable basis (e.g. square footage) to calculate the portion you can deduct. Note that you can't use these expenses to increase or create a business loss.
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