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Can You Take The Home Office Deduction?

By Don Sadler

Can you or can’t you take the home office deduction? This is one of the most vexing questions faced by home-based business owners.

While the rules for taking the home office deduction on your federal tax return can be complex, the rules are straightforward when it comes to whether self-employed individuals qualify for the deduction.

According to the IRS, to qualify for a business deduction for a home office, you must use part of your home:

• Exclusively and regularly as your principal place of business, or
• On a regular basis for certain storage use, such as inventory or product samples, as rental property or as a home day care facility

Exclusive And Regular Use
The key words are exclusively and regularly, says NASE National Tax Advisor Keith Hall, a certified public accountant.

“The IRS means exactly what this says. Most home-based business owners have no problem satisfying the ‘regularly’ requirement: They’re in their home office at all hours of the day and night.”

An exception to regular use would be an individual who only works from home part time and rarely uses the home office space, says Hall.

The exclusive use requirement, however, may be more difficult to meet.

According to the IRS, exclusive use means that a specific area of the home is used only for trade or business. So if you have a baby crib or guest bed in the room that you use as a home office, or a TV and console where your kids play video games, then the room would not meet the exclusive use test.

Similarly, if a consultant sits down at his dining room table to do paperwork or make phone calls to clients, or if an attorney works in her den writing legal briefs, these likely would not qualify for the home office deduction either. Why? Because the dining room is probably used for eating and the den for recreation and entertainment in addition to business.

Planning Strategy
However, Hall notes that in scenarios like these there may be steps you can take to qualify for the deduction.

“If possible, simply take the nonbusiness and personal items out of the room so that you are using it exclusively for business,” he says.

If your home isn’t large enough to devote an entire room to your home office, Hall says you don’t have to use the whole room to take the home office deduction.

“In this case, maybe you can just move furniture or other items around and partition off part of the room as an office separate from the nonbusiness area,” explains Hall.

Assuming both the exclusive and regular use requirements are met, almost any type of home-based business owner will qualify to take the home office deduction.

Don Sadler is a freelance writer in Atlanta, Ga. He took the home office deduction on his most recent tax return. You can reach him at [email protected].