Not surprisingly, when tax time rolls around, we have a lot of posts on our physician communities asking if a physician can take the home office deduction, considering so many of us do a lot of work from our home offices, whether it be charting, telemedicine calls, or otherwise. The short answer is that it depends. As we know all too well, tax deductions for W2 physicians are often hard to come by, which is one of the big reasons that many physicians love side gigs, as they open up a host of 1099 tax deduction opportunities. Below, we’ll cover the home office deduction, which doctors can take it, and what you need to know about it.
Disclaimer: As always, note that we are not accountants or lawyers, and this information is for general informational purposes only. You should consult appropriate expertise before taking action based on this information, which is neither guaranteed to be up to date and accurate nor individualized to your personal situation. While we’ve attempted to convey accurate information to the best of our knowledge, always confirm any information you learn about on our platforms with a licensed professional or official resource. To learn more, visit our disclaimers and disclosures.
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What is the home office deduction?
The home office deduction is a way for self-employed individuals to get a tax break for the portion of their house that they use for business purposes, similar to how businesses with office space can deduct related expenses. If you earn any 1099 income or if you are otherwise self-employed, you are likely eligible to utilize this tax deduction to deduct things like ‘rent,’ utilities, routine maintenance, repairs, and even taxes, as long as you meet the criteria outlined below. You can claim it on your schedule C (part of your Form 1040 of the annual tax return).
Your home doesn’t have to be a single family home - it can also be an apartment, a condo, or other dwelling that you live in. You also don’t have to own the property - you can rent the area that you live in and still qualify.
If I am an employed physician and routinely or always work from home, can I take the home office deduction?
Unfortunately, in 2024, as an employed physician rather than the owner of the business, you cannot. This may change, but between 2018 and through 2025, the Tax Cuts and Job Act (TCJA) has specified that employees can no longer deduct unreimbursed employee business expenses. This applies to many things in your life as an employed physician, such as licenses and CME if they aren’t reimbursed by your employer, and also includes the home office deduction. So even if you use your home office every single night to chart, and 3x a week all day to do telemedicine, you can not claim the home office deduction if that work is being done for your employer.
What criteria do I need to meet to take this deduction?
Essentially, you must be able to state that your home is your principal place of business or that your house is routinely used for business purposes, and that the area claimed is used exclusively for business purposes. If you only use the space for business a handful of times a year, you’ll have a hard time justifying that you qualify for the home office deduction - the IRS wants you to routinely and exclusively use that space for business purposes. There are some exceptions like storage and day care facilities (ask your accountant), but for most physicians, these are the generally applicable rules and are strictly enforced by the IRS.
Therefore, you should set aside a portion of your house or even of a room where nothing other than business activity occurs. The definition of regular is a lot more subjective, but it should pass the sniff test in an audit. Talk to your accountant if you’re at all worried that it wouldn’t.
In regards to the primary place of business criteria, the IRS will want to see that the majority of your business activity from an administrative or management perspective happens in your house. This doesn’t mean that you can’t perform most of the work elsewhere - for example, if you are a physician speaker, you can still give your talks elsewhere, but all the prep work you do and all the logistics of your business should be run out of your home office. The rules are a little different if you have an actual separate detached structure that is exclusively and regularly used for business, such as a separate dwelling on your property (think a home office that’s built in a converted detached in law suite or garage). Again, always run this by your accountant if there are any questions.
What if I’m an employed physician but I have a side gig/business? Can I take the home office deduction?
Good news. Even if you spend more time in your day job as a physician, as long as you are self-employed and meet the other criteria as it relates to your business, you can potentially take the deduction. There are some nuances though, which you should discuss with your accountant. For example, you can’t also use that same space for your work as an employee.
Of note, we should discuss whether your side gig counts as a business. The more substantial it is, the more likely you will pass the sniff test. You’re going to need to be able to show that this is a business that makes money, and that this is an active business, not passive income. So, for example, checking your stocks on your computer from your home office doesn’t qualify you to claim that you are an investor and this is your place of business. However, if you have an active real estate business where you rent out short term rentals or long term rentals, and you manage the properties yourself from your office, you could claim that, but in this role you are not a passive investor, but rather the owner of a business and functioning as a property manager. Passive real estate investing like syndications would not count.
How can I calculate what to claim for my home office deduction amount?
There are different ways of doing this, with varying complexity. The amount of deduction that you can claim is going to be based either simply based on the square footage that your home office space occupies, or the percentage of your house that is devoted to your home office. You’ll have to calculate which of the ways works out in your favor, as well as note the caveats in the section below to determine if its worth the hassle to use the actual expenses method.
If you choose to do the square footage method, “the simplified method,” it’s pretty straightforward. You just determine the square footage of your office (up to a max of 300 square feet), and then multiply the allowable square footage of your office by $5.
The other way, the “actual expenses method,” is much more complicated, as it involves calculating the percentage of square footage of your house that is made up by the office, and then multiplying that by your eligible expenses. The percentage of your house devoted to the office is the business percentage usage of your house, and that will be multiplied by the eligible expenses, such as taxes, mortgage interest, routine maintenance, repairs, utilities, and insurance, amongst other expenses. Your accountant likely has a spreadsheet that will help you calculate this. This form 8829 on the IRS website can also help you. Some expenses can be deducted completely if they are done solely for the home office, whereas things that apply to the house as a whole will be deducted based on the business percentage use of your house.
What other things should I know about the home office deduction?
Some important tips and caveats if you’re going to claim using the actual expenses method:
When you use the actual expenses method, you have to depreciate the value of your house, which is subject to capital gains tax when you sell your home. So if 10% of your house is used as home office and that is deducted as depreciation, that percentage of the profit when you sell your house could be subject to capital gains tax. You don’t have to worry about this if you use the simplified method.
Know that if you use the actual expenses method and own your house, it could affect your ability to avoid capital gains tax when you sell your house in the future. Normally you don't have to pay taxes on up to $250,000 ($500,000 if married filing jointly) on profits from the sale of the house.
Keep receipts and bills to justify your claims.
Each of these is beyond the scope of this article and the consequences should be discussed with your accountant (or you should do your own due diligence) prior to using the actual expenses method.
Conclusion
The home office deduction is a nice perk of having a business. For many self employed physicians, using the simplified method makes a lot of sense. If you want to use the more complicated actual expenses method to get the bigger deduction, talk to your accountant about the pros and cons of doing this before you decide whether it’s a good idea.