Qualifying for the home office deduction

More employers are allowing telecommuting as a work option. Additionally, high unemployment causes some to work out of their homes as a way of making ends meet. Consequently, more people are working out of their homes.

To qualify for a home office deduction, you have to meet each of the following four requirements (questions):

1. Is your home office used in a trade or business activity? You cannot take a deduction if you use your home for a profit-seeking activity that is not a trade or business. For example, if you use part of your home to manage your personal investments, you cannot take a home-office deduction.

2. Do you use your home office exclusively for business? You must regularly use a room or other separately identifiable area of your home only for your business. You do not meet this requirement if you use the area for both business and personal purposes. Some limited exceptions exist.

3. Your home office must meet one of the following three tests:

  •  Is your home your principal place of business?
  •  Is the home office used as a place to meet with patients, clients or customers in the normal course of your business?
  •  Is the portion of your home used for business activities a separate structure not attached to the dwelling unit?

4. If an employee, do you use your home office for the convenience of your employer? Generally, this means that the employer expects that work be done at home, either because the employer does not provide a suitable facility, or because the employer requires more prompt attention that is facilitated by the work being performed in the home.

Additional important details and examples appear in this article.


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