Home Office Deduction: Can You Take it?
Accounting and Tax Services
Feb 04

Home Office Deduction: Can You Take it?

Home Office Deduction

If you have an office outside your personal home—say, downtown—can you have a tax-deductible office inside your home for the same trade or business that will allow for a home office deduction? The answer is, yes! But who says that? The IRS says that. I’ll show you where the IRS says that!

IRS Publication 587:

The IRS says this:

Your home office (and home office deduction) will qualify as your principal place of business if you meet the following requirements: 

  1. You use it exclusively and regularly for administrative or management activities of your trade or business.
  2. You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. 

The quote above mirrors the law and the legislative history, as you will see below. Note the following points:

  • The administrative office is a “principal” office.
  • You must use this office exclusively for business.
  • You must use this office regularly for business.
  • You must do your administrative work in your home office.
  • You must not do your administrative work in the office outside the home.

 IRS Publication 587 also notes:

You can have more than one business location, including your home, for a single trade or business.

Takeaways

The law clearly authorizes the administrative office inside the home. The legislative history shows that the new law is a direct result of lawmakers finding that the Soliman tax case produced an unfair result. Thus, the change in the law gives you the opportunity to do two things:

  1. Create an office in the home as an administrative office.
  2. Have an office outside the home for business activities other than your administrative activities

And this one-two punch makes your office in the home your principal office for tax purposes, even if you work in the downtown office for many more hours than you work in the home office.

About Reed Tinsley, CPA

As a top advisor to physicians, I help increase practice profits by delivering hands-on, expert medical accounting/tax support, practice counsel, and revenue-building strategies. Read more →