Home Office – Tax Planning Options

From a tax perspective, having a home office in one’s own house or apartment is a complex issue. More and more people are regularly working from home or, as self-employed individuals, work exclusively from their desk at home. Those who work from home frequently and therefore need a separate room for their professional activities will naturally incur costs associated with a home office. As tax advisors in Düsseldorf
and Oberhausen
, we frequently receive questions regarding the tax deductibility of home offices. The subject is relatively complex and confusing. There are many exceptions and special regulations. In this article, we have therefore summarized a few of the most important aspects. In practice, however, it is important that you consult with a qualified tax advisor to avoid potential mistakes.

The Basic Situation Regarding Home Offices

First, we have good news and not-so-good news regarding the tax situation for home offices. The not-so-good news is that expenses for a home office generally cannot be claimed for any type of income, including special expenses! The good news, however, is that there are exceptions to this rule:

• If no other workplace is available to you for your work, you may deduct expenses up to €1,250. However, this is not a flat-rate amount! Rather, this amount should be considered the maximum of the deductible costs.
• There is also a way to deduct the total expenses without restrictions. For this, the home office must serve as the center of all business and professional activities. This applies even if another workplace is available.

Only if one of these two exceptions applies is it possible to claim the costs for tax purposes. So, if the home office is used only very rarely as a home office and another workplace is available, you will not be able to deduct the expenses for your office for tax purposes.

What should you keep in mind regarding a home office?

In addition to the exceptions mentioned above, there are several other aspects to consider in order to claim the expenses. Below, we have summarized the nine most important rules and guidelines. It makes sense to keep these points in mind so that the costs for your workplace can be claimed as fully as possible. As mentioned earlier, there are various other exceptions and legal precedents that we cannot fully cover here. It is therefore advisable to seek advice from a qualified tax advisor. However, the following sections provide a good initial overview.

1. What counts as a home office?

The term “home office” is not defined by law. Fortunately, there is a body of consistent case law to guide us. According to this, it is clear that the home office must be a room belonging to the residence that is separated from the rest of the living area. The room must also be used primarily for intellectual, written, or administrative and organizational work. It is important that the furnishings also correspond to those of an office.

2. The scope of use is particularly relevant

As mentioned several times, it must be clear that the home office is primarily used for work. Expenses for “normal” living are considered living expenses and therefore cannot be deducted for tax purposes. Accordingly, it is important that your home office is used almost exclusively for business, professional, or educational purposes—and thus not for residential purposes. It often happens that this aspect is disregarded or neglected. Many people also use the home office partially as a storage room or have a large wardrobe in the room. This would result in the tax office not accepting the room as a home office. As a general rule, 90% of the room must be designated for professional purposes. Accordingly, the tax office considers shared use for private purposes of up to 10% to be acceptable.

3. Recording of Expenses

First of all, there is, of course, a requirement to keep records of expenses for a home office. However, if the home office is used for business purposes, there is a special rule to consider. Expenses for the home office must always be recorded separately from other business expenses.

4. Which expenses are deductible?

Below, we’ll go into more detail about these expenses. A common question is which costs can actually be claimed for tax purposes. First, only the proportionate expenses for the home office itself may be deducted. These include:

• Rent
• Building depreciation
• Repair and renovation costs for the building
• Financing costs for the building’s acquisition or construction costs, or for repair and renovation costs
• Incidental costs such as property tax, garbage collection fees, or building insurance, as well as consumption-based water and energy costs
• Expenses for interior furnishings, such as wallpaper, flooring, curtains, and ceiling lights

In addition, expenses for work equipment used (desk, shelves, desk lamp, etc.) can, of course, also be claimed for tax purposes. However, these costs are theoretically deductible even without the home office provision. For this, the respective work equipment must simply be used primarily for professional purposes.

Expenses that can be fully attributed to the home office may, of course, be claimed in full immediately. For rent or other housing costs, the expenses can naturally only be claimed on a pro-rata basis. In the next paragraph, you’ll learn how this works.

5. Allocation of Expenses

It is not always possible to allocate costs entirely to the home office. If we consider rent, for example, the expenses must be allocated. You typically pay rent for the entire living space, but for tax purposes, you may only claim the proportionate costs for the area of the office space. The expenses must therefore be allocated in proportion to the relative sizes of the rooms. We have illustrated this more clearly in the following example:

For a 15-square-meter home office in a 100-square-meter apartment, 15/100 of the costs are thus attributable to the home office.

• Total expenses: €3,000
• Deductible amount: (15/100 × €3,000) €450

6. Use by Multiple People

You may wish to share your home office with a partner or roommate, for example. In principle, this is not a problem as long as the aspects mentioned above are taken into account. In this case, each user may claim the expenses they have incurred.

7. When does a home office not qualify?

Finally, we would like to highlight a few common situations in which expenses for a home office cannot be claimed:

• Expenses are not deductible if the remaining living space is too small
• If only a corner of the living room or bedroom is used as a home office, this is not recognized as a home office by the tax office
• If items such as a television, exercise bike, bed, piano, ironing board, clothes rack, wardrobe, or similar suggest private use of more than 10%, the room is not considered a home office
• If the other rooms in the apartment can only be accessed via the home office or if the home office must be traversed to reach the living room and/or kitchen, the expenses are also not tax-deductible

Once you have taken the aforementioned rules and exceptions into account, there should be no issues with the tax office. Nevertheless, it is important to us that we strongly recommend you consult with a tax advisor. There are many pitfalls in this area that should be avoided if possible. As tax advisors in Düsseldorf and Oberhausen, we are happy to help you determine whether your home office meets current requirements. Simply contact us to schedule an appointment. The team at Trimborn . Partner looks forward to assisting you!