Home Office Deduction

The home office deduction allows you to convert a portion of your nondeductible personal expenses, such as utilities and insurance, into deductible business expenses and to depreciate a portion of your home as business property. (See Depreciation.)

To qualify for the home office deduction, you must use a separately identifiable portion of your home (not necessarily an entire room) regularly and exclusively (no personal use):1

As your Principal Place of Business or, if you have more than one business, as the principal place of business for any of your businesses; or

As a business location where you regularly meet and deal with patients, clients, or customers; or

If your home office is actually a separate structure (such as a detached garage), as a place you use “in connection with” your business.

Employee home office. If you are an employee, including the employee-owner of your own corporation, your home office use must be for the “convenience” of your employer. For strategies on how to satisfy this requirement, see our May 2007 Tax Reduction Letter article (subscription required) titled, Home Office for Corporate Owner Requires Convenience of Employer.

Storage or day car use. Special rules apply if you use your home as a storage unit for inventory or product samples or if you provide day care services. You can find details on these exceptions in IRS Publication 587, “Business Use of Your Home (Including Use by Daycare Providers).”