Realty Times November 4, 1999

Home Sweet Business: Qualifying For The Home Office Deduction
by Broderick Perkins

Approximately 1.6 million home owners claim a home office deduction each year, according to the Internal Revenue Service, and a single-family home, condo, mobile home, manufactured home, boat or apartment can qualify.

"Just about anyplace with sleeping and cooking facilities can qualify for the home office deduction," according to Nolo.com, Berkeley, CA-based legal self-help publisher.

Along with ordinary business expenses for supplies and equipment you can also deduct part of your rent or take a depreciation deduction to the extent that a portion of your home is used for business purposes.

To qualify for the deductions, the IRS requires that you pass three tests:

  • Your home must be your principal place of business. If you work from two locations, in order to take the deduction, the home must be the most important location, generally, the one where you generate revenue, but not always. If, you compare the two locations and it's not clear from which location you generate the most income, also consider time spent at either location. You must spend most of the time in the home for it to be the principal place of business under this consideration. If after you look at revenues and time and you still aren't clear if your home is the primary place of business, you probably shouldn't take the deduction, according to Paul and Sarah Edwards, work-at-home gurus and authors of "Working From Home" (Jeremy P. Tarcher/Putnam, $18.95).

    There are two exceptions to this rule.

    New for 1999, if your home office is not your principal place of business, you can take the home-office deduction if, for part of your business, you see clients, patients, or customers face-to-face in your home or use the space for administrative duties, paperwork activities and other related activities crucial to your business or work.

    "A Dr. Soliman took this to court after he was using his home only for paperwork but did most of his work at the hospital. The Supreme court ruled against him, but effective Jan. 1, 1999, Congress backed off," said Bruce Hahn, president of the Arlington, VA-based American Homeowners Foundation.

    Also, if your home isn't your principal place of business but you use some free-standing structure on your property, exclusively and regularly for business, you can claim the home-office deduction for that space. A barn, greenhouse, workshop, studio, detached garage, any freestanding structure is eligible.

  • Your home business must also occupy a clear and indentifiable space in your home. Generally, that means it must be in a location apart from the rest of your home, say, an addition constructed for your office, a converted bedroom, attic or basement,but also space in an alcove, nook or say, large walk-in closet space in a larger room.

  • You must use your home business space exclusively and regularly for your business. You can't use your business space, say, to watch TV with the kids or to play computer games.

    "You can't have the guys over to watch the game and have a few beers in the office," said Hahn

    Editor's Note: This is the first part of a two part series. Tomorrow's second part will deal with: Calculating The Home Office Deduction

    Also See:

  • Your Home Office: Where to Set Up Shop
  • Designing Your Home Office
  • The Thirty Second Commute to Work; Planning Your Home Office
  • Ergonomics 101: Keeping Your Home Office Healthy

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