Tax Tip: Home Offices Are Worth The Deductions If You Qualify

A home office can be a significant deduction and well worth it if you qualify—but don’t try to bend the rules. Either you qualify or you don’t. Wise Bread has a good post about home office deductions, including who qualifies for a home office deduction and also what expenses are deductible.

The first question that must be asked about any home office in order for it’s expenses to be deductible is, is the workspace used exclusively and regularly for business? The answer to both of these questions must be yes before any deduction can be taken. If the workspace is used for both business and personal use, then it is not deductible. Furthermore, the space must be used on a regular basis for business purposes; a space that is used only a few times a year will not be considered a home office by the IRS, even if the space is not used for anything else. These criteria will effectively disqualify many filers who try to claim this deduction but are unable to substantiate regular and exclusive home office use. It should be noted that it is not necessary to partition off the workspace in order to deduct it (although this may be helpful in the event you are audited.) A simple desk in the corner of a room can qualify as a workspace, provided you count only a reasonable amount of space around the desk when computing square footage.

Deduct Those Home Office Expenses [Wise Bread]
(Photo:Tengaport)

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  1. GothamGal says:

    I work at home and use the computer for both. You bet I take the deduction.

  2. DallasDMD says:

    @GothamGal: We heard that.

    -IRS

  3. wealthkick says:

    gothamgal: That is illegal, you may want to rethink that. Along those lines, one thing you shouldn’t do with a home based business is to depreciate that portion of your home office (which you can actually do). If your business goes bankrupt or you owe some big debts to lenders, that portion of your house could inevitably belong to them.

  4. GothamGal says:

    Luckily GothamGal is my secret heroine identity, and I only deduct the superheroine costume.

  5. julieannie says:

    I can’t imagine most people even in the corporate workplace that never use a work office for personal use.

  6. youbastid says:

    @GothamGal: I think that’s how Steve Rubell got taken down.

  7. youbastid says:

    Although I don’t see how, if you were audited, they’d be able to prove that you weren’t using the space only for business. You can take one hour breaks in your home office as well, no?

  8. Sudonum says:

    It is a red flag begging to for an audit. I have a home office. I choose not to tempt fate and take the deduction. There are many other legitimate deductions I can take to reduce my taxable income to something I can live with.

  9. Roundonbothends says:

    Just build a little heated, air-conditioned space in a shack outside or in the barn. Use it for telecommuting 9 to 5 five days a week, and there should be little to disagree about.

  10. UpsetPanda says:

    One thing that virtually guarantees that no one can just scam their way into a deduction is the stipulation that one can only claim home office space as deductible if that is their ONLY work site. It must be the employer who deems that you work from home, and has not provided you an office space at their location. If you have a cubicle at work, and don’t spend any time there, and spend the rest working from home, unless your employer has specifically given you the leeway to work entirely from home, if that space has specifically been given to you to work from, you can’t claim your home office as a deduction.

  11. VA_White says:

    I am going to transition to working remotely in March. To keep things simple, we’ve decided to devote one entire bedroom to my home office so that it’s easy to delineate my office space from the rest of my house. I’m even putting my mini-fridge in there.

    I bought a separate desktop to use only for work, partly to keep things separate and partly because I have to use whole disk encryption on my work machine. I access health info from my work machine and have to be cautious about security.

    Hopefully it will be easy to take the deduction and easy to justify should I ever get audited.

  12. UpsetPanda says:

    I wonder though…another stipulation is that it has to be clearly delineated as work space, meaning there is nothing personal in that space…what if I have pets? Does it become a non-place of business if I don’t feel like closing my door and my pet wanders in and sits? I mean, just because it probably wouldn’t happen at an office, would I still be able to claim a deduction?

  13. Scuba Steve says:

    What about if you work from home and you rent? Portion of rent?

  14. jeffj-nj says:

    @Scuba Steve: I hope so; that’s what I plan on doing, ‘cuz that my situation.

  15. Landru says:

    When I was self-employed, I only had a small area that I could call my office, so the deduction was going to be small.

    I decided it was wasn’t worth the increased risk of an audit.

  16. humphrmi says:

    Be careful about deducting depreciation on home workspaces if you own your home, and ever plan to sell it. There are tax implications on selling depreciated property that can leave you owing more money when you sell.

  17. kimsama says:

    @humphrmi: Now, I agree, but I went to a self-employed tax seminar hosted by a local small business association this weekend, and the CPA guy leading the seminar said that, essentially, if you don’t take the deduction, the IRS is going to act like you should have anyway and dock you when you try to sell the house anyway, because you should have been deducting it, even if you didn’t.

    That sounds like crap to me, but I’m not a CPA, and I guess that it could be…? Any CPAs out there wanna explain what he could have been going on about?

  18. dgcaste says:

    @Roundonbothends: Strip the place of interesting things, and use a really uncomfortable chair. Also, put up “productivity” and “motivation” signs, and a punch-card timer. And a shitty coffee maker, and a picture of your family, and one or two pens with annoying furball caps. And a stapler without staples. I should stop, I’m getting annoyed at my own office.

  19. darkened says:

    @VA_White: Why would you do that? Didn’t you get the memo to keep confidential private data on a laptop in the front seat of your car with no encryption?

  20. whitecat says:

    I’ve been claiming a home office deduction for 15 years, and I have never been audited. It’s not the huge red flag you think it is.

    I used to be completely freelance, but now I am a W2 employee for a staffing firm. The company I do the work for still regards me as a contractor; the staffing firm is only involved to take care of payroll for them. This arrangement benefits me because as a W2 employee (instead of a 1099 contractor), the staffing agency pays part of my SS. They pass the cost on to the company I do the work for.

    My home office is a second bedroom. In my previous house it was a sun porch. Either way, it is 1/5 of my home’s square footage, and I can claim 1/5 of my mortgage and utilities (plus all of the DSL line) for my home office deduction.

    I work from home every day on a company-supplied laptop. However, I have my own desktop computer, printer, etc. and those are all business expenses (ink, paper, etc.) because I still do freelance work.

  21. quail says:

    Here’s something to note too, if you do qualify for the home office deduction be aware that there’s a tax bite waiting for you when you sell your house. Check with a qualified tax preparer to figure all of this out and to see if the benefits outweigh the possible hassles.

  22. whitecat says:

    I sold (with my ex husband) my house four years ago and bought a new house on my own. There was no tax “bite.”