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So You Want to Deduct a Home Office? Watch Out.

By Tanya Roth, Esq. | Last updated on

Tax season is creeping up on us fast. And these days, many Americans are working from home.

But does working from home necessarily entitle one to a home office tax deduction? It depends on whether you want your tax return to become "audit-worthy." 

Tax professionals are split on home-office tax deductions. Many tax professionals urge caution due to the looming threat of an audit.

For those who are not self-employed, the home office tax deduction becomes even riskier.

If you are self employed and plan to take the home office tax deduction, here are three things to be aware of:

Home office tax deduction issue No. 1: Home must be used for a trade or business. The words "trade or business" are IRS terms of art. You must be using your home office for an activity that is regularly engaged in for the production of income from selling goods or performing services. If you're just managing your own investments, the IRS will crack down.

Home office tax deduction issue No. 2: Exclusive use. The home office must be a designated home office that is used exclusively for the trade or business. You can't deduct a guest bedroom that is used half of the year by your in-laws. There are some exceptions to this, such as daycare facility use (with some special rules), certain storage use and rental use.

Home office tax deduction issue No. 3: Principal place of business. The home office must be your principal place of business. That is to say, you should be conducting substantial administrative activities at your home office and should not have another fixed location where you conduct substantial administrative activities. You might also be able to deduct if your home office is a plan to meet or deal with patients, clients or customers in the normal course of business. Now, if your home office is not attached to your house, you have a lot more freedom to deduct it.

The IRS has some great reading material on the topic so be sure to see what the IRS says about home office deductions. That and gave a look at our related resources links below for more information.

Related Resources:

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