Can I deduct home office expenses while I'm working from home? It depends

If you've been working from home much of this year, you've probably spent some money trying to make your living space more conducive for working.

Maybe you bought some supplies, a new desk or a chair, or you're just paying more for a better Internet connection.

If so, you may be wondering if you're allowed to take the home office tax deduction for those expenses on your 2020 federal tax return.

The short answer is, probably not.

If you work full-time for someone else, you're out of luck.

"Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home," the IRS noted last month.

It used to be that employees who itemized deductions on their federal returns were allowed to include any unreimbursed work expenses as part of their "miscellaneous" deductions. But the 2017 tax overhaul eliminated that option, said Nathan Rigney, a lead tax research analyst for H&R Block's Tax Institute.

Don't feel too bad, though. In order to get a tax break, your miscellaneous deductions had to exceed 2% of your adjusted gross income and even then you were only allowed to deduct the amount over that 2% threshold.

For employees living in Alabama, Arkansas, California, Hawaii, Minnesota, New York and Pennsylvania, though, "there is a silver lining," Rigney said.

These seven states let their residents deduct unreimbursed employee business expenses on their state income tax returns. Just be sure to check the instructions for your return because each state may have different rules regarding how much in unreimbursed expenses qualify.

But your best bet, no matter where you live, is simply to ask if your employer will reimburse you directly for your home office expenses, because a tax deduction would only reduce your tax bill by a fraction of what you spent, said Susan Allen, senior manager for Tax Practice & Ethics at the American Institute of CPAs.

It may take a little persuading. At the moment only 38% of employers say they are providing financial support for remote workers by way of reimbursement, allowances or subsidies, according to benefits consulting firm Mercer.

So who can take a home office tax deduction this year?

The people most likely to be eligible to claim the home office tax deduction are those who are self-employed -- meaning they run their own business out of their homes, or are independent contractors or freelancers working on assignments from home.

But they must meet the following rules: You may only deduct expenses for the portion of your home that is used exclusively and regularly for business and your home must be your principal place of business. And you may not deduct expenses related to anything that is used for both your work and your home life.

"You can't just set up a desk in your kids' playroom and take the deduction," Allen said.

The same goes for that nice new couch you bought for your living room, no matter how many hours you spend toiling on it with your laptop.

Here are more details from the IRS on deducting home office expenses, including a simplified method for calculating them.