"How much of my AirBNB can I deduct as a home office?"
I would say one of the question we’ve gotten the most is whether or not you, as a digital nomad, can take the home office deduction. The way that the IRS statute is currently written leaves little wiggle room for the digital nomad lifestyle. This doesn’t mean you can’t claim it - it just means claiming a deduction requires a little more thought.
First, let’s break down how the IRS rules are written. In order to claim the home office deduction, the following must be met:
1. The business part of your home must be used exclusively and regularly for your trade or business.
2. The business part of your home must be:
a. Your principal place of business;
b. A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business; or
c. A separate structure (not attached to your home) used in connection with your trade or business.
The important parts here for digital nomads are:
- Exclusive use - Working from your couch, kitchen counter, dining room table or bed unfortunately does not qualify you for this deduction.
- Regularly - moving around at the pace that we do makes this one difficult
- Principal place of business - if you’re working from a coworking space, you can’t claim to also be working from home.
If you do have an exclusive area of your AirBNB, apartment, beach bungalow or other lodging that is used for nothing else but work and work primarily from that location then this deduction might work for you.
There are two methods to calculate the home office deduction:
- The optional safe harbor method allows for $5 per square foot up to 300 square feet
- The actual allocation method does just that - allocates all actual expenses, including mortgage interest/rent, insurance, utilities, repairs, and depreciation.
We recommend having detailed records of each space claimed, including photos and videos showing a partitioned space used exclusively for work.
If you’re claiming multiple spaces for the deduction, your income will need to be allocated accordingly to the time spent in each space.
And lastly, the home office deduction can not cause a loss, so it could also be limited in this regard.
Remember that you are always able to take a 100% business deduction for any office or co-working space that you rent.
You can read more about the home office deduction in IRS Publication 547