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If the individual in question is not self-employed, but an employee who can qualify to take a home office deduction as an un-reimbursed employee expense, they need to examine their situation more carefully. While an individual in this position is not required to pay their employer's share of Medicare and Social Security, they cannot use this expense to reduce their share of the tax liability as an employee. Additionally, just because they qualify for the deduction it doesn't necessarily mean they'll see any benefit from it, but they will incur all the related risks. This stems from the additional hurdles the deduction will have to clear as a personal, as opposed to a business, deduction. As an un-reimbursed employee expense, expenses related to a home office are considered miscellaneous deductions, and are subject to a 2% threshold. What this means is that before any deduction can be considered for a home office, the total of all miscellaneous deductions subject to the 2% threshold must exceed 2% of the taxpayer's adjusted gross income, and only the amount that exceeds the 2% threshold may be taken. Once that hurdle has been cleared, a taxpayer's total itemized deductions usually need to exceed the amount of their standard deduction before any savings is seen, and, as an additional hurdle, higher income taxpayers may have their itemized deductions reduced by as much as 20%. Fortunately, most homeowners, because of property taxes and mortgage interest, usually have enough other itemized deductions to warrant the savings in the first place. The more difficult hurdle for most employees considering this deduction is weather or not they already clear the 2% threshold for all their other itemized deductions. After that, they can begin to consider all the other issues involving their net tax effect, depreciation recapture, and weather or not they'll be able to qualify under section 121 to avoid the recapture issues.
As can be seen, whether or not an individual qualifies for a home office deduction can be a boon, a liability, or simply a waste of their time. On the one hand, it can grant a reprieve from income or SE tax, but on the other, it can subject an individual to depreciation recapture rules, or simply a lot of time wasted in record keeping for no net result in a few rare cases. Fortunately, because of the rigid requirements to qualify it's also one of the few deductions an individual can choose to trigger issues causing them to fail the tests and avoid the potential pitfalls that accompany the benefits. Whether a person rents or owns, is self employed or works a for someone else, they need to consider all the facts and circumstances to determine whether or not it would be in their best interests to qualify for a home office deduction.
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