Principal Place of Business

One way to qualify for the Home Office Deduction is to use a separately identifiable portion of your home (not necessarily an entire room) regularly and exclusively (no personal use) as your principal place of business.1 And, with your home office as your principal place of business, you can turn nondeductible commuting expenses into business deductions. (See Transportation Expenses.)

Two tests. Your home office will qualify as your principal place of business if you meet the following requirements:

You use it exclusively and regularly for administrative or management activities of your trade or business; and

You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.

An alternative, but much harder test to satisfy, looks at:

The relative importance of the activities you perform at each place where you conduct business; and

The amount of time you spend at each place where you conduct business.

Tip. The alternative test basically says your principal place of business is wherever you actually make your money. In most cases, you are more likely to pass the “administrative or management activities” test.