If you’re self-employed and you’ve been working from home since the beginning of the COVID-19 crisis, you can use some of your PPP funds to cover utilities, rent, and mortgage interest expenses for your home.
Here’s our primer on home office deductions and how they work with the Paycheck Protection Program.
Does my home count as a home office?
If you use your home for business purposes, a portion of your home expenses can be counted as business expenses. Generally, these business expenses can be used as tax deductions, lowering your tax bill.
However, you can’t just “work from home” for a few minutes a day and consider that a home office.
Some examples of qualifying uses of your home include:
Having a room or a desk where you exclusively conduct business calls and other business activities
Having a separate area you use as a studio, workshop, or greenhouse for business activities
Having an area where you store merchandise samples or inventory
Further reading: Home Office Deductions (FAQ)
So are home office expenses forgivable?
Yes! But not all.
Only expenses for mortgage interest, rent, and utilities are eligible for forgiveness under the Paycheck Protection Program. All other home office expenses you could normally deduct on your tax return such as renter’s insurance, repairs, and depreciation, do not apply.
How do I calculate my home office expenses?
Home office expenses are generally calculated in proportion to how much your business space takes up relative to your entire home.
For example, if your home office is 200 square feet, and your home is 1,600 square feet, your office takes up 12.5% of your home. You can claim 12.5% of your eligible expenses as home office expenses.
For example, if you rent a home for $920 a month, and spend $80 on utilities, you spend a total of $1,000, and 12.5% of that ($125) can be paid for with PPP funds and can be fully forgiven.
Home office expenses only apply to expenses that are tied to the business. For example, if your business doesn’t use a phone, your home phone bill isn’t eligible.
Can I get home office expenses forgiven and deducted from my taxes?
No. The IRS has stated that once an expense is forgiven, it can’t be claimed again as a deduction. Your bookkeeper can help keep track of these non-deductible expenses to make your 2020 taxes easier to file.
Can I use the PPP for new home office expenses?
No. When it comes time to calculate forgiveness, you will need to prove that your mortgage, rent, or utility was active prior to February 15 by providing documentation such as a signed contract or a statement.
In short, if you’ve previously claimed the expense on your 2019 Schedule C, it’s a permissible expense.
If I did not claim a home office expense in 2019, can I use the PPP for it?
Yes, the SBA’s Interim Final Rule makes an exception for this. If you were eligible to claim a certain home office expense (but didn’t for whatever reason), you can still use the PPP funds to pay for it over your 24-week forgiveness period and qualify for forgiveness on that expense.
Can I prepay my rent or other home office expenses?
No, the PPP funds cannot be used to make payments in advance.