Do you work from home in Washington State? If you do and your home office needs an upgrade, you may be in luck! While Washington State doesn’t collect personal income tax, you still have to pay federal income tax, and many expenses related to your home office can be tax deductible!
When Are Home Office Renovations Tax Deductible?
First thing first: Since Washington State doesn’t tax personal income, all deductions are at the federal level. Washington State does, however, tax self-employed folks with their B&O tax rules. This tax is on gross income and offers no expense deductions. That means any deductions for home renovations would be only at the federal level.
Next, the IRS only allows self-employed individuals to deduct home office renovations from their taxes. The short answer is that home renovations that only improve the office are fully deductible only for self-employed individuals. Read on to get more details.
What types of projects are and aren’t tax deductible?
Renovations that benefit only your home office are fully deductible.
Adding built-in shelves or cabinetry surrounding your desk, adding recessed lighting over your workstation to reduce eye strain, or soundproofing your office would all be considered fully deductible expenses.
This is because these projects are specifically for your office, and don’t affect other areas of the home or serve another purpose. These are considered direct expenses and are fully deductible. Depending on how much the expense is, these can either be fully deductible in the year they were incurred or depreciated over time.
Projects that benefit your entire home are partially deductible.
Renovations like upgrading your HVAC, adding a new roof, or adding new flooring throughout your entire home would be partially deductible — you can deduct based on the square footage percentage of your home. If you live in a 2,000 square foot house and your office is 200 square feet, you would be able to deduct 10% of the entire expense.
These types of expenditures are considered indirect expenses — while they benefit your office, they also improve the rest of your home. That’s why you can only deduct the percentage that improved your office.
Remodeling for personal use is not deductible.
A kitchen or bathroom renovation would not be considered tax deductible, because those spaces are designed for personal use. Unless you are a chef with a separate kitchen in your home office, you won’t be able to deduct that expense at all.
Upgrading an office space with other purposes is not deductible.
A room with multiple uses, like a game room that has a desk where you work occasionally, is not deductible. Fully deductible expenses must be exclusively used for your office. Even if you work from your game room every day, the upgrades or improvements will not be considered only for your office space.
When Are Home Office Remodels Not Tax Deductible?
Though some home office remodels are fully tax deductible, there are some additional rules about what can and can’t be deducted from your federal income taxes.
W-2 Employees
Though remote work is popular, employees of organizations, also referred to as W-2 workers, cannot deduct office remodels from their federal taxes in Washington State. This was changed in 2017 as part of the Tax Cuts and Jobs Act and is effective through 2025.
Luxury Upgrades
Remodels and renovations beyond what is considered necessary for doing business are not deductible. An example of a luxury upgrade would be installing a built-in sound system. While this may make your workday more peaceful and focused, it’s not considered a business necessity.
To deduct a home office renovation from your taxes, you will need to provide justification that it’s necessary for your business.
IRS Standards About Tax Deductible Home Office Renovations
The IRS has strict standards to make sure people deducting home office renovation expenses are doing so responsibly. Remember, this is for folks who have a true business need for upgrades, not someone who wants a discounted remodel! These standards for your home office and renovations include:
Exclusive use: the space you renovate must be used only for business purposes.
Regular use: your home office must be used consistently and regularly for your business, and must be the main business location.
Improves your business: your home office remodels or renovations must improve your business, not just make your space more enjoyable or comfortable. For instance, adding storage for organization, or task lighting that helps you see better.
Necessary for business and common in your profession: the upgrades or remodeling you do must be something aligned with your profession and necessary for your business. For instance, adding upgraded electrical outlets to support multiple screens is common for web developers and designers. It would be necessary to support a productive work environment.
How Do I Deduct Expenses?
Whether you do your taxes yourself or with a professional, you’ll need to understand whether the scope of your work is deductible in the year you incurred the cost, or if it’s depreciable over a period of time.
Typically, smaller projects can be fully deducted in the year they are incurred. Large projects must be capitalized and depreciated over 39 years.
Learn More about Home Office Renovations
Tax deductions for home office renovations are complicated! Though we are not tax professionals, we can help you plan out your renovation, so you can understand if the changes and upgrades to your home are eligible for tax deductions.
Either way, you deserve a comfortable and relaxing environment for your workday. We specialize in renovating and improving home offices, kitchens, and bathrooms in Lacey, Washington and surrounding areas. Get in touch with 10 Day Kitchens to learn more about our home office renovation services that can transform your workspace in as little as 10 days!
