September 17, 2020
MANY PEOPLE FOUND THEMSELVES IMPROVISING with laptops on their kitchen tables or off in a spare bedroom when their companies transitioned to a remote workforce in response to the coronavirus back in March.
Now, after months of making do with the inconvenience of poor lighting and cramped table tops, a dedicated home office is beginning to seem like a great idea, especially because many employers are embracing the ability for their employees to work remotely at least through the end of the year, if not indefinitely. Even after you’ve returned to your office complex, a home work space to call your own may be appealing. Here are the key questions you’ll want to talk with your financial advisor about before planning your new work digs.
If you’re only looking to create a temporary or occasional work space, you may want to upgrade an existing area, perhaps with a lumbar-friendly chair, a spacious desk and flattering lighting for video conferencing. You can easily keep the costs of this minimalist approach under $2,000.
If you expect to be working from home on a regular basis, however, you’ll likely want a dedicated office space, which might involve converting a closet, alcove or under-stair nook and installing a built-in desk and cabinetry. Remodeling projects that convert unfinished space (say, over the garage) and/or adding features like soundproofing, heating and cooling or custom shelving will give you a truly comfortable space but can easily cost $20,000 or more.1
Especially if you’re taking on a larger project, it may make sense to finance it by borrowing against the value of your home or your investment securities through a home equity line of credit (HELOC) or loan management account (LMA). An LMA is a secured line of credit that uses your investments as collateral. It’s a way to leverage the value of your investments without withdrawing them—that way you can continue to pursue growth and potentially make progress toward other important financial goals, like retirement.
“It’s a good idea to check in with your financial advisor to weigh your options and talk about how the costs might affect your other goals,” says Marie Imundo, Senior Vice President of Mortgage Product Strategy, Global Wealth and Investment Management. Some of the considerations your advisor can help you think through as you consider your financing options: The interest on a HELOC may be tax deductible, as long as it’s used to improve the value of your home. While the interest paid on an LMA isn’t tax deductible, the application process is simpler and, because your investments remain in place, they can potentially continue to grow in value. In both types of loans, you draw only as much as you need, when you need it, and by borrowing rather than selling investment assets (another option you might consider) to pay for the renovation, you’re able to avoid any capital gains taxes a stock sale could create.
The money you’re saving by working from home—no commute, no takeout lunches or happy hours with coworkers—might just cover your monthly payments on a loan. But don’t count on a big home-office tax deduction, says Vinay Navani, CPA, a shareholder at WilkinGuttenplan.
First of all, only people who are self-employed are eligible. “W2 employees can’t take the deduction,” Navani says. Secondly, the office space can’t be used for anything besides work to qualify. And even then, the payoff will likely be small: the cost of certain permanent improvements must be amortized over 39 years, and you can generally write off only a small percentage of your regular home expenses, such as real estate taxes and mortgage interest.
“Most of my clients decide the home-office deduction isn’t worth the hassle,” Navani says. “Where you can get bang for your buck, though, is office equipment.” As long as you’re self-employed, you may be able to deduct the full cost of work gear, a printer with a scanning function, or a stand-up desk like the one waiting for you back at that big office building you left behind in March.
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
Our financial advisors are committed to putting your investing needs, wants and priorities first. Here’s how you can get started with an advisor.
Then we can provide you with relevant answers.Get started