Feb 17, 2021|
2020 was the year of WFH: Working from home became a reality for countless Americans, as company offices closed down to curb the spread of COVID-19. And, as the time nears to file your 2020 taxes, you might be wondering: Does your home office add up to any tax deductions for you?
It's a logical question: Since most WFH warriors shell out of their own pocket for internet, printer ink, and equipment upgrades if their laptop poops out, it's understandable to hope you can recoup some of these expenses by claiming the home office tax deduction on your taxes.
But beware: The home office deduction has changed a lot over the years, so whether you can claim it will depend greatly on your circumstances. Here's more on exactly who can claim a home office tax deduction—and who can't—as well as how much certain people can save. For people who can't claim this deduction, we've found some clever tax deductions to bring up with your boss that could still save you money—for now, and going forward as long as your WFH life continues.
Even though the name of this tax deduction has the phrase "home office," this doesn’t mean everyone who works from home can claim it, explains Paul Sundin, a CPA and a tax strategist at Emparion.
In a nutshell, the home office tax deduction can be claimed only by self-employed individuals—meaning freelancers, small-business owners, and anyone who works for themselves. That said, these workers still must meet certain conditions. (Read our next section for more details.)
There are very strict rules on what constitutes a dedicated home office. To claim this deduction, you must use part of your home exclusively for business. That means an office that doubles as your bedroom or an occasional guest room does not qualify.
That said, an open area with a desk that's used only for work qualifies just fine. So if your desk is in an open floor plan, simply measure the space you use for your office. And if you have an entire room dedicated only to work, measure the size of the room.
The easiest way to claim the deduction is to deduct $5 per square foot, up to 300 square feet, of office space, which amounts to a maximum deduction of $1,500.
If you think your deduction is worth more than $1,500, you can also try the more complicated method of tracking all the costs of your home office. Then allocate those expenses based on the percentage of the home you use solely as a home office. So if your office occupies 10% of your home's total square footage, you can deduct 10% of what you pay to keep it running.
Here's how that breaks down, according to Ben Reynolds, CEO and founder of Sure Dividend:
If you are a W-2 employee, you cannot claim a home office tax deduction.
Why not? While in the past employees could claim a deduction for employment expenses over a certain percentage of their income, the 2018 Tax Cuts and Jobs Act eliminated these deductions from 2018 to 2025. The act now prevents full-time, W-2 employees from deducting home office expenses on their 2020 taxes even when they worked from home more than they did in the office, says Reynolds.
There is one small exception to keep in mind: If you're a W-2 employee with a side hustle, you can deduct eligible home office expenses for that particular side gig.
Unfortunately, most employees working from home can't claim any federal tax deductions connected to being a remote worker during the coronavirus pandemic, says Sundin.
However, full-time remote employees who live in Alabama, Arkansas, California, Hawaii, Minnesota, New York, and Pennsylvania have a unique option for their state tax returns.
"W-2 workers living in these states can deduct business expenses their employer didn’t reimburse them for," says Reynolds. These can include a portion of your rent, mortgage interest, internet/utility bills, a new computer monitor, desk, or even an ergonomic office chair. Just be aware the deduction may not cover all of your 2020 work expenses 100%.
The exact rules vary from state to state, so check in with a local tax professional. You can also find your state's government website complete with links to tax information explained in greater depth at the IRS.
Even if you're a W-2 employee who can't reap any tax benefits from a home office directly, there are still some ways you can save money—by asking your employer to take some tax breaks on your behalf, then reimbursing you.
"There is something called Section 139 where the employer can reimburse pandemic costs for employees, at their discretion, tax-free," says Jackie Meyer, CPA and founder of The Concierge CPA and TaxPlanIQ. "You can ask for reimbursements or special stipends directly from your employer."
Section 139 defines those expenses as “reasonable and necessary” costs incurred by employees due to the pandemic. This can include everything from costs associated with establishing a home office (buying a desk) to maintaining a home office (upgrading to a faster internet). These payments are fully deductible for companies, offering a win-win situation for both employer and employee.
You can also ask if your company would consider an "accountable plan" for the 2021 tax year. Here's how an accountable plan works: Instead of being paid $50,000, your employer could pay you $45,000 in wages plus a $5,000 home office expense reimbursement, making your salary the same—while saving you on taxes.
Finally, business meals from restaurants (including takeout) may now be deductible under the Consolidated Appropriations Act 2021, signed into law on Dec. 27, 2020. While still subject to clarification by the Treasury and IRS, it seems that food and beverages provided by an employer for virtual or business meetings will be 100% deductible. An employer could also deduct food provided for employee virtual happy hours.
So this might be a way to get your employer to start covering more of your WFH food if you order in, says Meyer. Simply point out to your employer working meals are a great tax deduction for them, and ask them to put delivered meals on their tab.
Mar 1, 2021|
Do you have a home equity loan or home equity line of credit (HELOC)? Homeowners often tap their home equity for some quick cash, using their property as collateral. But before doing so, you need to understand how this debt will be treated come tax season.
With the 2018 Tax Cuts and Jobs Act, the rules of home equity debt changed dramatically. Here's what you need to know about home equity loan taxes when you file this year.
For starters, it's important to understand "acquisition debt" versus "home equity debt."
"Acquisition debt is a loan to buy, build, or improve a primary or second home, and is secured by the home," says Amy Jucoski, a certified financial planner and national planning manager at Abbot Downing.
That phrase "buy, build, or improve" is key. Most original mortgages are acquisition debt, because you're using the money to buy a house. But money used to build or renovate your home is also considered acquisition debt, since it will likely raise the value of your property.
Home equity debt, however, is something different.
"It's if the proceeds are used for something other than buying, building, or substantially improving a home," says Jucoski.
For instance, if you borrowed against your home to pay for college, a wedding, vacation, budding business, or anything else, then that counts as home equity debt.
This distinction is important to get straight, particularly since you might have a home equity loan or HELOC that's not considered home equity debt, at least in the eyes of the IRS.
If your home equity loan or HELOC is used to go snorkeling in Cancun or open an art gallery, then that's home equity debt. However, if you're using your home equity loan or HELOC to overhaul your kitchen or add a half-bath to your house, then it's acquisition debt.
And as of now, Uncle Sam is far kinder to acquisition debt than home equity debt used for non-property-related pursuits.
Under the old tax rules, you could deduct the interest on up to $100,000 of home equity debt, as long as your total mortgage debt was below $1 million. But now, it's a whole different world.
"Home equity debt interest is no longer deductible," says William L. Hughes, a certified public accountant in Stuart, FL. Even if you took out the loan before the new tax bill passed, you can no longer deduct any amount of interest on home equity debt.
This new tax rule applies to all home equity debts, as well as cash-out refinancing. That's where you replace your main mortgage with a whole new one, but take out some of the money as cash.
For example, say you initially borrowed $300,000 to purchase a home, then over the course of time paid it down to $200,000. Then you decide to refinance your loan for $250,000 and take that extra $50,000 to help your kid pay for grad school. That $50,000 you took out to pay tuition is home equity debt—and that means the interest on it is not tax-deductible.
Meanwhile, acquisition debt that's used to buy, build, or improve a home remains deductible, but only up to a limit. Any new loan taken out from Dec. 15, 2017, onward—whether a mortgage, home equity loan, HELOC, or cash-out refinance—is subject to the new lower $750,000 limit for deducting mortgage interest.
So, even if your sole goal is to buy, build, or improve a property, there are limits to how much the IRS will pitch in.
When in doubt, be sure to consult an accountant to help you navigate the new tax rules.
The Federal Housing Finance Agency (FHFA) Thursday announced extensions of several measures that the agency says will align COVID-19 mortgage relief policies across the federal government.
This announcement, which extends temporary measures (previously set to expire March 31) until the end of June follows the White House's February 16 moratoria extension applied to all federally backed mortgages through the same period.
The extend moratoriums on single-family foreclosures and real estate-owned (REO) evictions applies to GSE-backed, single-family mortgages only. The REO eviction moratorium applies to properties that have been acquired by Fannie or Freddie through foreclosure or deed-in-lieu of foreclosure transactions.
FHFA also announced that borrowers with Fannie Mae or Freddie Mac-backed mortgages may be eligible for an additional three-month extension of COVID-19 forbearance.
This additional three-month extension allows borrowers to be in forbearance for up to 18 months. Eligibility for the extension is limited to borrowers who are in a COVID-19 forbearance plan as of February 28, 2021, and other limits may apply. Further, COVID-19 Payment Deferral for borrowers with an Enterprise-backed mortgage can now cover up to 18 months of missed payments. COVID-19 Payment Deferral allows borrowers to repay their missed payments at the time the home is sold, refinanced, or at mortgage maturity.
“Borrowers and the housing finance market alike can benefit during the pandemic from the consistent treatment of mortgages regardless of who owns or backs them. From the start of the pandemic, FHFA has worked to keep families safe and in their homes, while ensuring the mortgage market functions as efficiently as possible. Today’s extensions of the COVID-19 forbearance period to 18 months and foreclosure and eviction moratoriums through the end of June will help align mortgage policies across the federal government,” said FHFA Director Mark Calabria.
This week's actions mark the latest in a series of steps FHFA has taken to assist homeowners and the mortgage market during the pandemic. FHFA noted that it may extend or sunset its policies based on updated data and health risks.
Homeowners and renters can visit consumerfinance.gov/housing for up-to-date information on their relief options, protections, and key deadlines.
Smart locks provide clients additional peace of mind. They’re able to check the status of a lock anywhere in the world and remotely lock or unlock it if necessary. This is a great option for allowing service providers into their home without making copies of keys or giving out a garage code.
Schlage has been designing and manufacturing locks since 1920. They now offer three lines of smart locks, which are compatible with a variety of smart-home systems.
Schlage Encode uses Wi-Fi to communicate with a home’s router and can be controlled with either the Schlage Home app or Key by Amazon. This allows homeowners to check the status of the lock and remotely grant access to friends and family. It does not require a hub and uses four AA batteries, making it a great option for anyone just getting started with smart-home automation. Its battery life is estimated to be around six months due to its Wi-Fi connection.
The lock integrates directly with the Ring doorbell and can also be controlled through Amazon Alexa by voice, which requires a PIN code for added security.
Schlage’s Sense lineup is another option that uses Bluetooth instead of Wi-Fi, though there is an option for a Wi-Fi adapter. This lock is very similar to the Kwikset Kevo line of locks and is also compatible with Apple Homekit.
Schlage’s Connect models, meanwhile, come in two varieties—the Z-Wave Plus or Zigbee—depending on which smart-home hub the homeowner uses. These are comparable to the Kwikset Smartcode 916 line of locks but are noticeably quieter. The key differences between the Z-Wave and Zigbee versions are that the Zigbee lock is compatible with Amazon Key and Echo Plus but the Z-Wave lock works with Google Assistant, Wink, Ring Alarm, and other Z-Wave–only hubs.
The Encode and Connect both have a one-year battery life and include the needed four AAs. Each version comes in a variety of color options and styles to match the homeowner’s existing hardware. Installation is easy and took about seven minutes, including removing the previous lock, connecting to the Wi-Fi router, and setting up the app.
Kwikset has been around since 1946 and has a patent on its SmartKey Security deadbolts, which allows users to easily rekey their own locks. It’s recommended that homeowners change the locks anytime a property changes ownership or a key cannot be accounted for. You never know when someone that has been given access to the property has made a copy of the key or shared the code.
In addition to Kwikset’s standard door locks and Smartcode electronic locks, the company offers locks that connect via Z-Wave, Zigbee, or Bluetooth. The 916 series connects with Amazon Alexa via Samsung’s SmartThings or similar smart-home hubs, allowing users to check the lock’s status, lock and unlock the door, and receive notifications. The total installation time for the Kwikset Smartcode 916, including connecting it to my SmartThings hub, was around seven minutes. It performs and looks very similar to a Schlage Connect, but I did notice it was a bit noisier. The Premis line works the same way for homeowners who use Apple Homekit and also can be unlocked with the app via Bluetooth.
Kwikset’s newest smart lock, the Kevo, features “touch to open” features and can integrate with other smart-home devices, such as a video doorbell with the optional Kevo Plus.
Now a homeowner can make any lock a smart lock with the Kevo Convert, which uses the existing hardware on the exterior of the door, by swapping it for the interior hardware in just minutes.
Both of the brands I tested include a standard key as well as a programmable touchpad to open.