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
Broderick Perkins parlayed a career in old-school journalism into a
contemporary digital news service that really hits home.
The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services.
The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home.
Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News.
Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake.
He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications.
In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.
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.
Broderick Perkins parlayed a career in old-school journalism into a
contemporary digital news service that really hits home.