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Question: am I eligible for the Home Office Deduction, and if so, how to ensure I am figuring it correctly given the below?

I am a software developer and have been working from home for several years now. I have a home office that is used exclusively for my work, but up till now I have not been able to do a home office deduction because I am a W-2 employee. This year I picked up a part-time side gig as an independent contractor (W-9). I now use the home office both for my regular software job and for my side gig.

Details:

  • Side gig, started in April, will have worked 9 out of 12 months (3/4 of year)
  • Home: 2000 sq. ft., Office: 200 sq. ft., so 10%
  • Daily hours: W-2: 8, W-9, 4 (Side gig 1/3 of total hours)

Given this situation, can I still be eligible for the home office deduction? If so, then:

  1. Do I need to take additional steps, such as dividing the space in two and using separate desks, and only deducting the section used for the side-gig?

  2. Do I have to account for only having the side gig for 9 months, or can I account it as if I'd worked all 12, for:

       a. direct expenses?
    
       b. indirect expenses?
    
  3. If I can't divide the office physically, can I take the total area and divide by three to reflect the 1/3 usage for the side gig?

Note, I am not sure yet whether I will be using simplified "safe haven", or the general method of calculating expenses, so answers that speak to both situations are appreciated.

1 Answer 1

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  1. I would guess yes, because to qualify for the home office deduction it must be used "exclusively and regularly as your principal place of business for your trade or business", where in this context "business" excludes a W-2 employee working from home.

  2. Per the Form 8829 instructions:

If you did not operate a business for the entire year, you can deduct only the expenses paid or incurred for the portion of the year you used your home for business.

  1. No, it must be an exclusive area of your home. You would need to divide your office between W-2 work and 1099 work, as you suggested in part 1 of your question. Seems silly, I know, but those are the rules.

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