What are the rules for claiming home office expenses in 2022?
Work at home. Ah yes, where work and personal time can be indistinguishable, actual productive hours are questionable, WiFi can be dismal, your dog barking on a Zoom call is predictable, your spouse crawling on the floor behind your chair but still on screen is laughable, and pants are optional.
Was there. It is done. The good news? All that vsa source of tax savings if you claim home office expenses. With the pandemic in its final stages, people are asking the question: What are the rules for claiming home office expenses in 2022? Let me share a recap – and update – of two approaches, and look at the steps you need to take before the end of the year to make sure you’re saving tax if you can.
The lump sum method
For many years, employees and self-employed people have been able to claim home office expenses if certain criteria are met – and those rules are still in effect today. But the rules can be complicated and claiming expenses can be a lot of work.
So, in the wake of the pandemic and many people working from home starting in early 2020, the IRS has created a simplified way for employees to claim home office expenses for 2020 and 2021. This streamlined approach – called ‘lump sum method’ – has now been extended and will also apply to 2022. A perusal of the eligibility criteria on the government’s website suggests this approach may also be permitted in 2023.
The flat rate method allows you to claim a deduction if you worked from home in 2020, 2021 or 2022 because of the pandemic. To claim expenses, you had to have worked from home at least 50% of the time for a period of at least four consecutive weeks in the year. You can make a claim even if you decided to work from home and your employer did not require it.
If you use the flat rate method, you do not need to add up your specific home office expenses or keep documentation of those expenses. You also don’t have to calculate the percentage of your home used for work, or get your employer to sign any forms. Instead, you can simply claim $2 for each day you worked from home up to a maximum of $400 for 2020, or $500 for 2021 and 2022.
What is a work from home day? Any day you worked full-time or part-time will count. But you cannot include days off (weekends or holidays), vacation days, sick days, or other unpaid leave.
Here’s a tip: if you haven’t worked from home in 2022 for half the time in a four-week period this year, there’s still time to talk to your employer about taking this test by December 31st. If you complete this “half the time for four consecutive weeks” test, then you can claim $2 for each day of the year that you worked from home. It won’t make you rich, but a deduction of up to $500 could save you between $120 and $268, depending on the province you live in and your income level.
Incidentally, you cannot use the flat rate method if you are claiming other employment deductions, such as vehicle expenses, office supplies, travel, food, or other claimed expenses. on Form T777, Statement of Employment Expenses.
The detailed method
Generally, the flat-rate method will be much simpler and likely to provide a larger deduction than the traditional method of deducting home office expenses – called the “item method” – for many people. However, if you are a renter or simply have a lot of large home-related expenses, it may be a good idea to use the detailed method.
Under the detailed method, you can claim a deduction for a portion (based on the percentage of your home used for work) of the following costs: rent, electricity, heat, water, condo fees, Internet access, landscaping and repairs and maintenance. If you are a commission employee, you can also add home insurance, property taxes, and technology rental costs (cell phone, laptop, tablets, etc.). Sorry, but mortgage interest can never be claimed by an employee – only the self-employed.
If you use the detailed method, you will need to ask your employer to provide a completed and signed Form T2200S or T2200 to verify that you worked from home during the pandemic and had to pay for your own expenses related to this workspace. You will also need to keep supporting documents for all of your home-related expenses.
Finally, don’t be surprised if the taxman chooses to review your home office expenses when you use the itemized method. An audit project is underway where the Canada Revenue Agency is looking closely at these claims (See my article of October 13 for some examples of taxpayer experiences).
Tim Cestnick, FCPA, FCA, CPA (IL), CFP, TEP, is author, co-founder and CEO of Our Family Office Inc. He can be reached at [email protected].