By topic: Home office
Part 2 of our three-part refresher course offers more good news about the principal residence gain exclusion of up to $250,000 ($500,000, if married). In this article, you will find liberal rules that give you a prorated exclusion when you or other qualified individuals experience a change in place of employment, health issues, or unforeseen circumstances. You also will learn how business or rental use affects the exclusion and how to treat vacant land that is part of your personal residence.
The $250,000 ($500,000, if married) home sale gain exclusion break is one of the great tax-saving opportunities. Although the tax code contains many rules on this tax break, most of them are easily understood, especially as we explain them in this article.
What happens if the IRS makes a mistake in its publication or instructions? Is this your problem? How would you know if the IRS made a mistake? This article explains a mistake on the gross-income limit in the IRS home-office publication. Make sure this mistake is not costing you money.
Do you claim a home-office deduction? Do you have a garage (attached or detached) at your home? If so, you need to spend a few minutes with this article. You will learn when to include and exclude the garage when calculating your home-office space.
“Show me the proof!” Have you ever wanted proof that you can have an office in your home when you also have an office downtown? This article gives you the law, legislative history, and IRS authorization for the office-in-the-home deduction.
Three questions for you: (1) Can you use part of one room as a deductible home office? (2) How about a dozen full-sized rooms? (3) Can you deduct the portion of your home that you use for storage of your business records? Find the answers here.
With the COVID-19 experience, you and your partners may be doing a lot of work from home or even working from home primarily. Is the home-office deduction in the mix? If so, because you are a partner, your options for getting a tax benefit for your home-office deductions are tricky. But no worries, we’ll tell you about the two options to use and two options to avoid.
Do you work from home? Whether or not you have a deductible office in the home, the assets such as desks and chairs that you use for business are deductible—and are often overlooked as business deductions. For example, what happens when you convert a personal asset to a business asset? Does the personal taint last forever? You will like the answers you find in this article.
When you are self-employed with no employees, the PPP program is a COVID-19 gift. If you now have your PPP funds, you need to review this article for insights on how to handle the money. After all, the idea is to have the loan forgiven.
Home-office deductions aren’t just for Schedule C businesses. You can have a rental property home office and deduct those expenses on a Schedule E. Besides the usual tax benefits of a home-office deduction, you will gain time that can qualify you as having tax code–defined real estate professional status, and thus unlock 100 percent of your current-year rental losses for immediate deduction against all income.
The simple maneuver of converting your personal residence to a rental property brings with it myriad tax rules, mostly good when you know how they work. For example, your rental net income can create the Section 199A deduction if the rental rises to the level of a trade or business (most do).
You have probably read that the home-office deduction increases your chances of IRS audit. We’ve read that, too, but we don’t believe it. Regardless, there are a few things you can do to make your home office less likely to ever appear in an audit.
We took a deep dive into the 263 strategy articles that apply to the self-employed and pulled out 10 that you should spend time with.
In this IRS examination, the examiner mistakenly applied the first-and-last-stop business commuting rule. We explain what the IRS got wrong and what documents can be used to overturn the IRS’s decision.
If you have no taxable income, should you claim the office-in-the-home tax deduction? Answer: yes. Even with no taxable income, you have two for-sure tax benefits from the home office, and you likely have a third benefit, as we explain.
If you have an office downtown where you spend 40 hours a week, can you claim that you have an office in your home that qualifies as a principal office if you spend only 12 hours a week working in the home office? If you said no, you are not alone. But you would also be wrong, as we explain in this article.
For most business owners, the home office not only produces business deductions for a percentage of personal home expenses but also can create a substantial increase in business vehicle deductions.
Obtain access to this new, handy 28-page guide to creating the home-office tax deduction. Inside the guide you’ll learn how the administrative office gives you the tax-favored principal office. This is the same tax code–defined “principal office” that you get when you make the cash register ring from your home office (Soliman case).
The Tax Cuts and Jobs Act makes claiming a tax deduction for a personal casualty loss more difficult. And when you do qualify to deduct a personal casualty loss, you face a number of rules that add to your misery by making the loss deduction difficult. In select circumstances, you can use a safe harbor, which makes things a little easier.
Your rental properties provide tax shelter when you can deduct your losses against your other income. One step to deducting the losses is to pass the tax code’s 750-hour test. One step to finding the hours you need may be your drive time.
Here’s a link to a resource that gives you 10 proven strategies to lower S corporation taxes.
As you likely know, you now have two methods for finding the home-office deduction: the actual expense method and the IRS optional safe-harbor method. To make the deduction work at the corporate level, your corporation must reimburse you, the employee, for the deduction. Can the corporation use the IRS method?
You can plan your tax-deductible business life to avoid cold winters and hot summers. To do this, you need to know what a tax home is and where your tax home is located. The good news is that you have just one tax home unless you are one of those rare individuals who has no physical home.
Depending on how you operate your business and where it’s located, the federal income tax terms “personal home” and “tax home” can have a big impact on your business vehicle deductions. And then there’s the difference between the federal income tax terms “business travel” and “business transportation” and how one very beneficial rule applies when you are inside the area of your tax home.
If you operate your business as a sole proprietorship, the government takes a big chunk of your profits in the form of self-employment taxes. But there’s good news. With the help of your spouse, you can reduce your self-employment tax bill by using a simple rental strategy.
The business mileage rules can get tricky, and this is especially true if you drive both inside and outside your metropolitan area. This metropolitan area is not what you think it is. The IRS and the courts have created special confusion about your metropolitan area.
With one business use of the home office and no personal use, you qualify for the home-office deduction. The second business use, employee use, and spouse use must equally qualify for the home-office deduction, or else.
If you own rental properties, you don’t want the tax law to call the rentals an investment. Instead, you want the rental properties to qualify as a trade or business so that you achieve tax-favored Section 1231 treatment and many other tax breaks.
What percentage of your business vehicles would you (or your business) like to deduct? To achieve your desired percentage, you need to know and apply the rules that the IRS applies to the mileage that you drive from your home to various business destinations.
The woman in this audit learned how tax knowledge can turn what appears as a nightmare (an IRS audit) into a positive happening—meaning cash refunds for the year of the audit and subsequent years. As the old saying goes, “knowledge is power.”
The special rule that applies to administrative or management use of the home office creates a principal office. There are only two ways to create a principal office in your home. The administrative or management office works when you have two offices: (1) an office in the home and (b) an office outside the home.
Depreciation is a valuable tax deduction but is often missed or mistakenly computed. If you missed depreciation or did it incorrectly, you can fix it in the current year and get some possible major tax benefits for doing so. In fact, the need for a correction can create planning opportunities for you.
If you operate your business as an S corporation and you take advantage of the benefits you receive by having an office in your home, you probably want an easy and audit-proof way to make the reimbursement request. You find that in this article.
As a small-business taxpayer, you likely have control of your business. With control, you can do much to increase your tax benefits with a qualifying heavy vehicle and a certain type of office in your home. So, if you’re looking for some major tax savings this year, you will find a path to them in this article.
When is it possible for the home-office deduction to include a percentage of lawn care and related landscaping expenses? Answer: As explained below, your use of the home office needs to create a qualifying business reason for a good-looking lawn.
Learn how this IRS revenue procedure allows you to avoid taxes on the sale of a personal residence in which you had a home office or that you used as a rental property. The procedure lays out the methodology, which includes using the $250,000 ($500,000 if married) home-sale exclusion in unison with a 1031 tax-deferred exchange to avoid the taxes and enhance your deductions on the replacement home.
One of our tax professional subscribers disagrees with the S corporation being able to reimburse the owner-employee for depreciation of the home office. She asked whether we can back up our claim that depreciation is reimbursable.
Last month we explained how an S corporation could rent the sole shareholder’s personal residence for 14 days or less, obtain a tax deduction for rent, and create tax-free income for the shareholder. An enrolled agent raises six issues that he thinks could negate this free-rent strategy. Learn what the issues are and why the strategy really does work.
The home-office tax deduction provides tax savings to business owners. It turns otherwise nondeductible personal expenses into valuable business deductions. When tax law taxes your business as a proprietorship, you simply deduct home-office expenses on Schedule C. But when you operate your business as a corporation, you face special rules to achieve the same benefits.
What happens when you locate a commercial office (an office in the home or a regular office) in a duplex or apartment building? It’s possible that this location can produce tax-favored depreciation for the office. This seems a little strange at first, but once you see how the rules work, it’s pretty logical.
The IRS tax form for deducting the home office contains the gross-square-footage method and makes no mention of other permissible methods. But the instructions for that form and the IRS publication on the home-office deduction both mention other reasonable methods. This article shows you how one other reasonable method, the net-square-footage method, works—and why it is always superior to the gross-square-footage method found on the IRS form.
Do you claim the home-office deduction? If so, did you claim zero depreciation on the office so you could avoid the recapture tax? If yes, you need to spend a few minutes with this article to see whether that zero depreciation on the home office was a good idea or not.
Learn how orthodontists and other professionals can have an office downtown and also qualify for a home-office deduction using tax law’s administration rules.
Have you been claiming zero depreciation for your home office so that you can avoid the depreciation recapture tax? Surprise! Tax law has allowed and allowable depreciation rules that can make you pay the recapture tax without giving you the actual depreciation deduction. If this happens to you, you are going to pay a double tax.
Your rental properties provide tax shelter when you can deduct your losses against your other income. For you to deduct your losses, you need to pass the tax code’s 750-hour test. The good news in this article is that the home-office deduction can help you pass this test in some delightful ways that you would not usually think of.
Business owners who operate their businesses as corporations and also deduct an office in the home commonly use one of three tax-deduction methods in an effort to achieve tax benefits. One method provides no tax benefit; it’s just smoke and mirrors. The second method might create a small deduction or none at all. The third method is the correct choice, as it ensures the full tax deduction and even reduces your chances of an IRS audit.
Silver Lining for a Loss on the Sale of Your Home? Deduct Your Home-Office Loss—and Slash Your Taxes
Your trip from home to the office each day certainly feels like part of your workday, but it’s not—at least according to the IRS. Unless you fall into certain exceptions, your commute creates personal mileage, which is not deductible. But there’s a solution, and it’s so easy that if you don’t do it, you’re simply giving money to the government that you could keep for yourself.
Claim a Home-Office Deduction for Your Rental Property Business—But Be Prepared to Meet IRS “Gray Area” Requirements
You enter a muddy legal area when you claim a home-office deduction in connection with your rental properties. Why? You must prove that you operate the rental properties as a trade or business. This article shows you the best way to meet that “trade or business” test and safeguard your deductions (and escape self-employment tax in the process).
Have you ruled out taking the home-office deduction because you believe your home is too small? You should think again. You can set up a mini home office using as little as a single square foot of floor space. When you read this article, you’ll see why this could generate thousands of dollars in tax savings.
It’s not hard to qualify for the home-office deduction when you take advantage of the administrative and management activities safe harbor. This approach gives you all the nice benefits of the home-office deduction but allows you to spend the majority of your time in your office outside the home. However, you have to know how the rules work—namely, you have to know which business activities you can and can’t do in each location.
Are you an S corporation owner who takes advantage of the office-in-the-home deduction? If so, here’s good news. With the right tax planning, you can sell your home containing the office and defer or eliminate 100 percent of your tax, including recapture for any depreciation that you claimed. That news should put a smile on your face. Read this article to find out how you can use this strategy to pocket some extra tax dollars.
When you buy a house with less than 20 percent down, your lender will almost always force you to buy mortgage insurance. This protects the lender in case you default. Tax law used to help a lot people with the cost of mortgage insurance by allowing a deduction to certain taxpayers. That selective help on personal homes expired in 2013, but there’s hope for an extension, and existing deductions continue for your rentals and office in the home.
You may not expect to sell your current home or vacation property any time soon, but you should take these (easy) steps right now to prepare for—or better yet, avoid—the tax burden when that day ultimately comes. If you plan to rely on the home sale gain exclusion to shield all of your profit, don’t do that. We’ll tell you why not in this article. We’ll also show you how certain records can substantially reduce the taxes you owe on the sale of your home.
What happens if the IRS makes a mistake in its publication or instructions? Is this your problem, or what? And how would you know if the IRS made a mistake? This article explains how the IRS made a mistake in its publication and in its instructions on the gross-income limit that applies when you want to claim the home-office deduction and have more than one place of business.
Tax law treats the built-in desk as either personal or real property depending on where you locate the desk. The personal location, such as your home, can make the built-in desk real property whereas the commercial location, such as your home office, makes the built-in desk personal property. In business, you want the personal property classification so that you can get the vastly quicker write-offs.
Are you timid about claiming your rightful home-office deductions, especially when you have a business location outside your home? You’re not alone. This article addresses the rule that causes much misinformation and worry. Join us as we dispel this home-office deduction doubt!
The IRS created a new optional method that you can use to calculate the tax deduction for an office in your home. Obviously, this brings up a question: Does the IRS like you, or does the IRS hate you? The IRS reveals itself in this new optional method.
Depending on how you operate your business and where it’s located, the federal income tax terms “personal home” and “tax home” can have a big impact on your business vehicle deductions. And then there’s the difference between the federal income tax terms “business travel” and “business transportation” and how one rule applies when you are inside the area of your tax home.
Don’t claim that home-office tax deduction! It’s a red flag. Whoa! What’s a red flag and who says so? This article debunks the red flag for the home-office deduction.
You can’t claim a home-office deduction if you also have a second location for your business outside the home. Right? Wrong!!! Here’s why.
Your ability to deduct a home office is straightforward until you allow your spouse to use the office or you add a second business to the mix. When your spouse uses the office or you add a second-business, your home-office tax deduction becomes more complicated.
Last month we explained how an S corporation could rent the sole shareholder’s personal residence for 14 days or less, obtain a tax-deduction for rent, and create tax-free income for the shareholder. An enrolled agent raises six issues that he thinks could negate this free-rent strategy. Learn what the issues are and why the strategy works.
Tax law limits the home mortgage interest deduction to a maximum mortgage balance of $1.1 million. But what happens when you have an office in your home for which you claim tax deductions and also have a mortgage in excess of $1.1 million? In this article, the IRS agent incorrectly disallowed some home-office mortgage interest, and the tax professional had difficulty finding the tax law that would overcome the disallowance.
How do you treat a trip from your home to your rental property? Does the trip produce deductible mileage? Or is the trip a personal commute? If it’s a personal commute, what could you do about it?
You might have asked yourself this question: Can I claim the home-office deduction and not claim depreciation as part of that deduction? The answer: Yes, but you need to have records that prove your zero amount. And then there’s the sad fact that you likely cheat yourself out of some after-tax cash by not claiming your depreciation deductions. This article explains how this works and more.
Here are four answers to questions you might have regarding your business mileage, such as how to treat mileage from an administrative office in the home to yoga and then to your downtown office. Or how would you treat mileage to a Lions, Rotary, or Shriners meeting or activity? This article gives you both ideas and answers.
Do you operate your business as an S corporation? If so, how does the home-office deduction work for the employee-owner? Here are six answers that the S corporation owner needs for the home-office deduction. One of the six answers gives you ideas on how you can comply with the “convenience-of-the-employer” test.
The tax law definition of your tax home can jump up and bite you when you have a business operation away from your personal residence. Since tax law does not govern where you live, it treats your decision on where to locate your home as a personal decision that gives you a personal location. When your tax home is not near your personal home, you can lose both (a) overnight business travel deductions and (2) business mileage from an office inside the home to a regular office outside the home.
The home-office deduction lives in the world of false myths. One such myth is depreciation recapture. In most cases, the benefits of depreciation deductions far outweigh the recapture. Further, with a little planning, you can easily defer and even avoid the recapture tax altogether.
To claim a home-office deduction, you must use a portion of your home exclusively for business. The meaning of the word “exclusively” (pretty much “only”) is explained in this article.
Learn how this IRS Revenue Procedure allows you to avoid taxes on the sale of a personal residence in which you had a home office or that you used as a rental property. The procedure lays out the methodology, which includes using the $250,000 ($500,000 if married) home-sale exclusion in unison with a 1031 tax-deferred exchange to avoid the taxes and enhance your deductions on the replacement home.
You might qualify for an office downtown, an office in your main home, and an office in your vacation home. Wow! Three offices. And tax law might make all three offices principal offices. (Of course, three principal offices is an oxymoron, but hey, this is tax law, so three principal offices is a true possibility.)
To prove and keep your home-office deduction, you must know what the courts accept as regular use, and then you must take the steps necessary to prove your regular use. The biggest failure of the home-office deduction is failure to prove regular use.
How does the owner of a corporation claim a tax deduction for an office in the home? Rental is not the best method. Deducting employee business expenses as miscellaneous itemized deductions is not the best method. The best method is to use an accountable plan, as you will learn in this article.
The home-office deduction requires exclusive business use of the residence area used as an office. Under this exclusive-use standard, how much and what types of personal use does the law allow?
Do you claim a home-office deduction? Do you have a garage (attached or detached) at your home? If so, you need to spend a few minutes with this article. You will learn when to include and exclude the garage when calculating your home-office space.
The IRS tax form for deducting the home office contains the gross-square-footage method and makes no mention of other permissible methods. This article shows you how the net-square-footage method works and why it is always superior to the gross method found on the IRS form.
What happens when you locate an office (home office or other office) in a duplex or apartment building? It’s possible that this location can produce tax-favored depreciation for the home office.
Local zoning laws might require a separate entrance for an office in the home, but this rule would not apply to the type of home office we recommend.
If you own rental properties, you don’t want the tax law to call the rentals an investment. Instead, you want the rental properties to qualify as a trade or business so that you achieve tax favored Section 1231 treatment and other tax breaks.
With one business use of the home office and no personal use, you qualify for the deduction. The second business use, employee use, and spouse use must equally qualify for the home-office deduction, or else.
You can keep records that reduce the chances of an IRS physical inspection of your office in the home.
Computers and programs like Quicken make it easier to track business and personal activities. Even so, there are rules of the road that you should follow to ensure the best results.
The woman in this audit learned how knowledge can turn what appears as a nightmare (an IRS audit) into a positive happening—meaning cash refunds for the year of the audit and subsequent years. As the old sayings goes, “knowledge is power.”
Learn the federal income tax rules on business mileage to increase vehicle deductions. The four questions and answers in this article give you a clear roadmap of the rules along with the strategies you need to pocket more cash from your business.
Show me the proof that I can have an office in my home when I have an office downtown! Have you ever wanted that proof? This article gives you the law, legislative history, and IRS authorization for the office in the home deduction.
If you operate one business with two operations in separate states, you need to know the rules to tax deduct overnight business travel between the two locations. You also need to know these tax deduction rules if you have two businesses in two states.
You may claim a tax deduction for the business portion of your home security system regardless of your qualification for the office in the home deduction.
This court case shows how an office in the home may have than one room that qualifies for deduction.
You may not claim a home office deduction when you rent your home office to your S corporation employer. Therefore, redo this arrangement by taking advantage of your employee status.
You do not need a tax deductible office in your home to deduct the cost of business furniture and equipment in your home
You may not deduct any home expenses when you rent office space to your employer. This is the law. However, you can avoid this law and get additional tax benefits by following our outline on how to deduct a home office for your corporation. Do it right and avoid a red flag.
You can deduct your home office, even if you have another office. We have proof from the tax law that makes it possible. See the details and do it right.
One taxpayer’s CPA is totally wrong about three things: deducting a home office for multiple offices, net square footage, and using the office for rental properties.
Purchase of a safe or file cabinet to protect business tax records is deductible, but only to the extent of business use.
The accountant who is telling you that you may not deduct a home office because you have an office outside the home is wrong. It makes no difference how adamant he is about this. He is wrong.
The taxpayer in this case relied on his lawyer, but that lawyer did not know the home-office rules. Then, the judge misapplied outdated rules to his home-office deduction, costing this taxpayer $7,000.
The IRS applies a recapture tax, even when no depreciation is claimed.
If you do not have a home office, you may not deduct things related to the home, like gas bills or homeowners’ insurance. However, the law allows you to deduct office assets that could produce tax benefits because they would not be considered part of a dwelling.
To deduct things in a home office, they must be used exclusively for business use. Not one minute can be personal use. Should you have a use that fails the exclusive business-use requirement, that one failed use disqualifies your home-office deduction.
The best strategy for this subscriber: do nothing. He is considering forming a corporation, but we think that will not help him with what he wants to do. Sometimes the best solutions are the easiest.
Section 280A(c)(6) forbids the home-office deduction when you rent home-office space to your corporation. Whenever you have transactions with or your owned corporations, partnerships, and other entities, you face rules in the tax . As Gary and Delores Beecher recently , of the related-party rules produce harsh results.
The IRS puts out its audit manual every year. It not only contains information on how to audit, but also gives information on disallowing deductions. We dissected the audit manual and give you 11 audit-proofing tactics to ensure you get the deductions you deserve.
You have probably read that the home office increases your chances of IRS audit. We’ve read that, too, but we don’t believe it. Regardless, there are a few things you can do to make your home-office audit-proof.
If you operate your business as a corporation and claim the home-office deduction, you need to prove that you use the home office for the convenience of the employer, your corporation. You must pass the convenience-of-the-employer test whether or not you are having the corporation reimburse you for home-office expenses.
Revenue procedure 2007-16 allows you to make a change in depreciation after you sell, trade, or abandon property. The new procedures make some prior procedures obsolete and make revisions easier.
You cannot qualify for the home office deduction if you have two administrative offices, one at home and one at your other office. Also, the rules only apply to you, not your staff.
You need to know the rules to protect yourself not only from the IRS, but also from the courts. If you don’t take the proper position on your home-office deduction, neither the IRS nor the courts give consideration to the arguments you should have raised that would have won your deductions.
Claim the proper amount of depreciation on your home office to take advantage of the time value of money and avoid problems.
When you operate your business as a corporation, you claim the office-in-the-home deduction as an employee. The law requires that this employee use be for the convenience of the employer. Generally, you want the convenience of the employer reason in writing.
When you have your corporation reimburse your home office as an employee business expense, you treat the home as if you had claimed the office-in-the-home deduction personally.
The corporate reimbursement of the owner-employee for office-in-the-home expenses includes condo fees and mortgage payments.
When you start a new business activity or you do a business activity on the side, you must establish a profit motive. One easy way to demonstrate the profit motive is to show the time you spend on the activity. This taxpayer had no proof of time worked, so he looked suspicious to the court.
The corporate reimbursement to you, the employee, for the business use of your home office requires that you recognize the depreciation component of the reimbursement as if you had claimed the office in the home on your personal tax return.
A marketing activity in the administratively qualified home office does not destroy the office in the home deduction.
In 1935, the self-employment tax topped out at $60. In 2006, the first part of the self-employment tax tops out at $14,413, but the 2.9 percent Medicare part continues after that without limits. Good tax planning for the self-employment tax is like an annuity. It gives you monetary returns—year after year—every year you are in business. So, plan now and consider everything from choice of entity to hiring your children.
The IRS audit manual states: “If you rent all or part of your residence to your employer and use the rented portion when performing services for the employer, you cannot deduct home-office expenses attributable to the rental.” Thus, forget the rental to the corporation and use the corporate-reimbursement-to-the-employee strategy for maximum benefits.
This taxpayer had his CPA with him during the IRS audit of his tax return. When the home-office deduction came up, the CPA agreed with the IRS that this taxpayer did not qualify for the home-office deduction under Soliman—a Supreme Court case that lawmakers made obsolete in 1999 with enactment of a new law. Thank goodness this taxpayer was a subscriber to this newsletter and, because of that subscription, knew the rules on the home office.