Deduct your rent

Can you deduct your rent? It’s a question our Tax Coaches at Accountable often receive. The answer is that deducting your rental costs can either be very easy, or very impossible. Logically, your office expenses are fully deductible, whether it is your rent, water, electricity or heating bills. However, there is a complication regarding the rent in particular, depending on the type of lease or rental agreement.

Let’s have a look at the different situations.

Situation 1: You own the building

Do you own the building where you work? It’s simple, really—there’s no rent to deduct.

However, be cautious: some self-employed individuals have their management companies lease a portion of their privately-owned properties. Remember, this arrangement is taxable for the property owner.

As a homeowner, however, you can deduct a portion of your mortgage interest. Specifically, you deduct mortgage interest corresponding to the portion of your home used for professional purposes.

Situation 2: You rent an office or work space

If you rent a dedicated workspace, separate from your home, the process is straightforward: the entirety of your rent is deductible. Yes, that means 100%.

What counts as proof for accounting purposes? The commercial lease or rental service agreement, such as those used for co-working spaces, serves as an example.

Situation 3: You use part of your rental as home office

If you rent your home, you CANNOT deduct your rent unless a portion of it is designated for professional use, and this is stipulated in your rental agreement.

In that case, the following conditions must be met:

• The lease must specify a business use.
• The portion of rent allocated for professional purposes must be documented in the agreement.
• This arrangement must be formally registered.

It’s important to note that this doesn’t mean you can deduct the entirety of your rent. Instead, you may deduct a portion based on the ratio of the professional area to the total area of your home, up to a maximum of 15%.

If you don’t meet these criteria, then a deduction is not permissible.

Generally, private rental costs are not tax-deductible, and attempting to claim such deductions could potentially increase the tax liability for the landlord.