If your home is also the main office for your job, you save handsomely on office rent and the commute from home is a breeze. You may also be able to deduct a host of expenses for the space in which you work, including the cost of renters’ insurance for the home or apartment in which the office is located.
Here’s a rundown of what qualifies for the deduction, and how to file for it in your return.
What Qualifies As A Home Office?
As with virtually all home office deductions, your work area at home must be only that. The IRS will not qualify your deduction if the designated area of your home serves another purpose besides being the place where you conduct your business. But the dedicated space needn’t be an entire room, necessarily. A corner of a bedroom used solely for work can qualify, as can an alcove with your desk, computer, and supplies beneath it.
The work you do in your dedicated office can be something other than running your own business. A space used because your employer requires you to work at home can also qualify. However, in order to take advantage of the renters insurance tax deduction you must be doing so at the prerogative of your employer, not for your own convenience. You also cannot rent to your employer any part of your home or apartment.
If you operate an Airbnb, you may deduct the renters insurance from the portion of the home that is being rented out.
How to Calculate What’s Deductible
The IRS allows two methods of calculating the maximum deduction possible for your home office expenses, including renters insurance. Both methods use the square footage of your business space to determine how much of your insurance is eligible for tax deduction.
The Simplified Method. This involves measuring the square footage of your home office space and rounding it to the nearest average home office size of 100, 200 or 300 square feet. You then multiply that number by $5 (which is the current flat rate for this deduction) up to a maximum of 300 square feet, and that will give you your deduction, with a limit of $1500. For example, using this method with a home office of 75 square feet, you would first round 75 to 100, multiply by $5, and determine your maximum tax deduction for renters insurance to be $500. This method doesn’t require any calculation of actual expenses and works best if you have a small home office.
The Regular Method. To determine your tax deduction using this method, first measure the square footage of your home office and compare it to the total square footage of your apartment or rental home. For example, if your home office is 100 square feet and your apartment is 1000 square feet, your home office comprises 10% of the total square footage. This means that 10% of your renters insurance would be tax-deductible. This method is a bit more difficult, as it requires more exact measurements. If you estimate that the area of your office is more than 300 square feet, however, it will be the better option, since the Simplified Method allows deductions for only up to 300 square feet.
The Paperwork To Keep
As is also the case when deducting car insurance from your taxes, it’s advisable to retain at least three years of tax records in the event the IRS wants further justifications of your deductions and write-offs. You should keep a copy of your annual or monthly renters insurance bill that states the cost of your total premium as it relates to the deduction you’re claiming for your home office. You should also come up with a filing system that works for you that allows you to easily find a given document quickly and keeps the rest organized and neat so nothing is lost in the event you need to provide proof of a deduction to the IRS.
Filling Out The Tax Form
If you’re using the Simplified Method to determine how much of your renters insurance is tax-deductible, there’s no extra forms or documentation for you to fill out. Simply follow the steps detailed earlier to determine the maximum tax deduction of your renters insurance, up to the $1500 limit, and list it as a deduction on your IRS forms.
If you’re using the Regular Method instead, there is a 43-line Schedule C form, Form 8829 Expenses for Business Use of Your Home, that will require you to calculate your allowed deduction for renters insurance (among other potential tax-deductible expenses). It is worth consulting an accountant to decide which of these two methods is best for you based on your specific circumstances and to maximize your potential deduction. If you are deducting your renters insurance through operating an Airbnb, you can include the renters insurance as an expense on the Schedule-E form.