for a Home Office Deduction
The requirements of the home office deduction are strict. To
qualify, your home office must be used exclusively and regularly
for business and either: (1) be your principal place of
business or be used to personally meet with clients or
customers in the normal course of your business; or (2)
be a separate structure that is not attached to your house or
residence, in which case it merely has to be used in your trade
Exclusive and regular business use. You don't
necessarily have to use a portion of your home as an office; it
could be a showroom, lab, or storage area. However, you must use
it regularly, not just occasionally. "Exclusive
use" means that the business part of the home may not be
used for any personal, family, or investment activities, or for
any other business activities that don't meet the home office
There is an exception to the "exclusive use"
requirement if your home is the only fixed location of a retail
or wholesale business. In that case, you can deduct expenses
that pertain to the use of part of your home for the storage of
inventory or product samples.
Patrick Daley's home is the sole, fixed place
of his business selling personal computers at
retail. He regularly uses half of his basement
for inventory storage, although he also uses
that part of the basement for personal purposes
when his inventory is low.
The expenses allocated to the storage space
are deductible even though he does not use that
part of the basement exclusively for business.
There is also an exception to this exclusive use requirement
for those who operate a child care business in their home. The
portion of the home that is used regularly for day care
qualifies as a "home office," even if it is also used
for personal and family living space. However, day care
operators face an additional time
restriction: they may only deduct expenses for the actual
time the day care center was open.
Other requirements. In addition to the exclusive and
regular use tests, you must meet one of the following
- The part of the home must be your principal place of
- You must use it as a place to personally meet clients or
customers in the normal course of your business (telephone
calls don't count).
- If it is a separate structure that is not attached to your
house or residence, it merely has to be used in your trade
The "principal place of business" definition is
significantly easier to meet than it once was. Currently, a home
office will qualify as the principal place of business if: (a)
the office is used by the taxpayer to conduct administrative or
management activities of a trade or business, and (b) there is
no other fixed location where the taxpayer conducts substantial
administrative or management activities of the trade or
The fact that you may conduct management activities in a
non-fixed location, such as a car or hotel room, will not cause
you to lose the deduction. Similarly, the fact that you conduct
some management activities in another fixed location of the
business will not cause you to lose the deduction, as long as
those activities are not "substantial."
Are you eligible as an employee? If you or your spouse
is an employee, including an employee/shareholder of a small
corporation, you must be using your home for the convenience of
your employer in order to qualify for the home office deduction.
If your employer provides you with office space elsewhere, you
probably can't take the home office deduction because your home
would not be considered your principal place of business.
The IRS specifically prohibits you from taking the home
office deduction if you rent all or part of your home to your
employer and then use the rented portion to work in as an
Personal Checklist: Do you qualify for the
home office deduction?
here to quickly determine if you meet the
If you don't qualify. Even if you don't meet
these strict requirements, you can still deduct certain expenses
that are directly
related to your business activities.