Be very careful with office in the home deductions. This is an area that the IRS watches very carefully and audit levels are very elevated for office in the home deductions.
Question: I use my home for business. Can I deduct the expenses?
Answer: To deduct expenses related to the business use of part of your home, you must meet specific requirements. Even then, your deduction may be limited.
Your use of the business part of your home must be:
Exclusive. Exemptions are below:
Must be for regular every day use
Must be for your trade or business and
The business part of your home must be one of the following:
Your principal place of business.
A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business.
A separate structure (not attached to your home) you use in connection with your trade or business.
NOTE: You do not have to meet the exclusive use test if you satisfy the rules that apply in either of the following circumstances:
You use part of your home for the storage of inventory or product samples.
You use part of your home as a day-care facility.
Form 1040, Schedule C (PDF) filers calculate the business use of home expenses and limits on Form 8829 (PDF). The deduction is then claimed on line 30 of Schedule C.
If you are an employee and you use a part of your home for business, you may qualify for a deduction. You must meet the tests discussed above plus:
Your business use must be for the convenience of your employer.
You do not rent any part of your home to your employer and use the rented portion to perform services as an employee.
Employees claim deduction for business use of home as an itemized deduction on Form 1040 Schedule A (PDF). There is a worksheet in Publication 587 to calculate the amount of the deduction.
As a former IRS Agent, office in the home deductions were a field day to work and audit, almost everyone fudged.
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