Estimated tax tip savings: If you have real estate rentals and use space in your home to run that business, you could generate deductions of $5,000 to $15,000 a year. But in order to do so, you have to meet a set of “fuzzy” requirements.

Imagine this nightmare scenario: You find yourself in an IRS audit. The auditor makes a mistake on the law but simply will not listen to your argument, and ultimately you end up with a tax bill that you believe you do not legally owe.

Sounds like a disaster, right?

Unfortunately, it can happen. But good news: smart taxpayers actually can prevail in these Kafkaesque scenarios.

Dr. Edwin Curphey found himself in just such a situation. The IRS rejected his home-office deduction that he claimed in connection with his rental property business. But Dr. Curphey didn’t back down. He took his case to trial, and he won. The court granted him 100 percent of his deductions—plus the satisfaction of beating the IRS in a court of law.

Gray Area for Rental Property Home Office

We have to cut the IRS some slack in this case. The home-office deduction in connection with your rental property business is not always a sure thing. You have to deal with some legal “gray areas,” which means you need to know what you are doing before you claim this deduction.

Here’s the trick—you can claim the home-office deduction only in connection ... Log in to view full article.