When Is Rent Tax Deductible? Things You Need to Know
The cost of rent has gone up significantly over the years, and it consists of a big chunk of your total yearly expenses. The good news is, you can write off rent under certain circumstances, and lower your tax outgo.
If you meet the following criteria, you could be eligible to get a tax deduction on rent paid.
You have a home office
If you're using a part of your home as your workspace, you can partially write off your rent. Applicable for self-employed individuals, the deduction reduces your tax liability if you’re a freelancer, independent contractor, or business owner. As long as you have a dedicated area (not necessarily a separate room) in your house where your workstation is set up, and you regularly use it for work purposes, you’re eligible for the home office deduction.
To calculate the amount you can deduct on a monthly basis, you have to consider the square foot area of your workstation, divide it by the total area of the rented property, and multiply it by the amount you spend every month on rent. You can take help from a tax professional to claim the deduction correctly.
Besides rent, you can also deduct other home office deductions including wifi bills, utility bills, rental insurance, and so on. Find out more about self-employed tax deductions here.
You have rented an office space
Have you rented out a space to run your business? You can write off the entire rent amount from your total tax liability. The best part about this deduction is, you have the provision to claim 100% of the total rent paid. Be it a studio or a co-working space, as long as you’ve rented it for business purposes, you can show it as a deduction.
But remember that you cannot take the home office deduction if you’re writing off the office space rent. And in case you switched between working from home and renting out a separate workspace within a year, you can still get a deduction. You'll have to calculate the number of months during which you used the home office, and the number of months you used the rented workspace to calculate the total deduction.
You pay for accommodation during a business trip
If you're self-employed, a freelancer, or a business owner, you might have to take frequent work-related trips. You can claim the expenses incurred on temporary lodging. However, to be able to write off your Airbnb stay (or any other temporary mode of accommodation, for that matter), the trip cannot be a personal one—it has to have a business purpose.
Bonus tip: Don’t forget to maintain receipts
If you plan to take deductions on rent, you'll have to preserve all relevant documents. They come in handy during the tax season, and if there is an audit required, you can show the documents to support your claim.
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