Working from home can be a dream. You no longer have to deal with annoying morning traffic, you get to be close to your family all the time, you have more flexible hours, and your own coffee tastes better anyway! Clearly, a work room in your home (häusliches Arbeitszimmer) can be greatly beneficial.
Since 2007, it has become difficult for taxpayers to deduct costs for a work room from their taxes due to a lot of past controversy in the tax courts (Finanzgerichten). If you do choose to declare a work room on your tax return, the tax office (Finanzamt) will check your details very carefully.
A 2017 letter from the Federal Ministry of Finance (Bundesfinanzministerium / BMF) affirmed that § 4 Paragraph 5 of the Income Tax Act (EStG) typically prevents works rooms and furnishing costs from being deductible. However, there are two exceptions:
If your company has not provided you with another workstation for your professional activity, you can deduct up to 1,250 euros annually in work room expenses. This is called a limited deduction (beschränkter Abzug).
You may deduct unlimited expenses (unbeschränkter Abzug) if the core of your professional activities takes place in your work room at home.
These expenses can be deducted as income-related expenses (Werbungskosten) in your tax return, self-employed persons can claim them as business expenses (Betriebsausgaben).
What is lawfully considered a work room? Before you can deduct your work room expenses, the tax authorities must officially recognise it. The room must meet certain conditions in order to be deductible – you can read about how this works below.
Tax-Deductible Work Room
According to a 2016 ruling by the Federal Court of Finance (Bundesfinanzhof / BFH), a work room is a room that is almost exclusively used for professional activities and is integrated into the domestic sphere of your apartment or house. “Domestic sphere” means that it can also be a room in your attic or basement, as long as it is a part of your private living space.
The room must meet a few other requirements:
- It must be a separate room with a door, meaning a corner in the living room does not count. Ideally, it shouldn’t be a walk-through room: there were only a few cases where the tax courts accepted walk-through rooms as tax-deductible work rooms.
- Private use of the room must not exceed 10%. So it’d be best to remove the ironing board and guest bed!
- All residents of the apartment/house must have enough living space for private use. If you live alone in a 2 room, 50m² apartment and your work room takes up 30m², it will not be recognised by the tax office.
- The room should be equipped like an office. According to the Federal Court of Finance (Finanzgericht), it should be suitable for “intellectual, written, administrative, or organisational work.” As usual, there are exceptions to this rule: In 2010, a musician won a case against the Cologne tax court that her music room at home, where she rehearses her musical pieces, was recognised as a tax-deductible work room – even without typical work equipment.
Your work room cannot be accessible to the public, nor can employees work there. If this were the case, it would be domestic business premises (häusliche Betriebsstätte), not a home office (i.e. an exhibition room, law firm, or practice in one’s home). The expenses for the room and equipment would then be fully tax-deductible.
Who Can Deduct a Home Office?
__1. No other workstation available: limited deduction (beschränkter Abzug) __
Even when the core of your work doesn’t take place in your work room at home, you are still eligible for a limited deduction of up to 1,250 euros if part of your work must be completed from home due to no other workstation being provided to you. Some examples of this include:
- Teachers or professors who prepare their lectures and correct exams at home and have no personal desk at school to perform this.
- Sales agents who perform most of their work on site with customers and cannot prepare accounts and travel reports in the office.
You must be able to prove to the tax office (Finanzamt) that your work room is necessary for your professional tasks and is not simply for convenience or comfort. If you only use this room from time to time when it is too noisy in the office, then it is not out of necessity. You should obtain a declaration from your employer stating that certain tasks must be performed in your work room at home because no other workstation is available.
__2. The core of your work takes place in your work room: unlimited deduction (unbeschränkter Abzug) __
If the core of your work takes place in your work room at home, you can deduct your expenses in full. This mainly applies to these occupations:
- Home workers
- Freelance journalists
- Graphic designers
By the way: Working from home doesn’t mean that you automatically have a lawful tax-deductible work room. You must first ensure that the room and your professional activity meet the above requirements.
Which Expenses Can I Deduct?
Certain expenses need to be deducted in proportionate amounts, so you will need to gather your annual utility bills and calculate the costs for your work room. Let’s say you live in a 100m² apartment and your home office takes up 15m², then you can deduct 15% of the following expenses:
1. Room (proportionate costs)
- Rent (for real estate owners the depreciation for the building and debt interest for loans)
- Loan interest
- Energy and water costs
- Repairs and maintenance
- Cleaning costs
- Insurance premiums (e.g. building or household insurance)
- Garbage collection
- Heating maintenance
- Property tax
- Contributions to the tenants’ association
- Chimney sweep
2. Equipment (full costs)
- Renovation and refurbishment costs
Being Reviewed by the Tax Office
When you declare a work room in your tax return for the first time, the tax office will send you a questionnaire to gather information about the core of your professional activities. If the core of your work doesn’t take place in your work room, you must explain why it is necessary for certain tasks to determine whether the limited or unlimited deduction applies to you. Furthermore, you must explain who uses the work room and for what purposes, how it is integrated into your apartment, who else lives with you, and what room/equipment costs you would like to deduct. Visits from the tax office to verify your details are rare and typically announced in advance.
Tax Tip: Deduct Work Equipment
Equipment used exclusively for work can still be deducted as income-related expenses (Werbungskosten) even if the tax office doesn’t recognise your home office. Self-employed persons can claim their equipment as business expenses (Betriebskosten). It doesn’t matter where they are located in your home, but if you also use the equipment privately, you must split the costs and only deduct the professional portion. Some examples of work equipment are:
- Work clothes
- Professional literature
- User software
- Office furniture
- Office supplies
Work equipment purchases up to 800 euros net (952 euros including sales tax) are fully deductible in the year of purchase. For more expensive purchases, depreciation over the years must be calculated and taken into account. The Federal Ministry of Finance (BMF) provides information and values for work equipment in the AfA-Table (“Absetzung für Abnutzung”). For example, a computer can be written off for three years – so please ensure you keep all invoices and receipts!
Tip: In addition to the purchases, you can deduct repair, cleaning, and maintenance costs for your equipment.
More tax tips: A married couple of teachers won a lawsuit against the Baden-Württemberg tax court after being refused a tax deduction of 1,250 per person even though both spouses met the requirements for deducting their joint work room including using and paying for the room in equal shares. The tax court initially rejected the claim but then had to allow it in the end. A 2016 Federal Court of Finance (BFH) ruling determined that § 4 Paragraph 5 of the Income Tax Law (EStG) states that the maximum deductible amount is now person-related instead of object-related (file numbers VI R 53/12 and VI R 84/13).
Simple Alternative: A Work Room Outside of your Home
If a separate work room won’t fit into your apartment, you have the option to set up an office elsewhere, such as renting a space in an office complex or utilising a co-working space. Both cases are recognised by the tax office as there is no question about the core of your work activity taking place in the room or whether another office space is available to you. You can easily declare the expenses for rent and furnishings in your tax return – they will be recognised in full.
Home Office Lump Sum (Home-Office-Pauschale)
Due to the Corona pandemic, 20% more employees worked from home in 2020 than in the previous year. Did you work from home for part of or all of 2020? Did you have to use your laptop in the kitchen or living room because you don’t have a separate work room? If so, you may be eligible for a tax relief through the government-approved Home Office Lump Sum. Read more about this in our article Home Office during the Corona Pandemic.