Home Office Expense Deduction for
If you're self-employed and work out of an office in your home, and if you
satisfy the strict rules that govern those deductions (discussed below), you will be
entitled to favorable “home office” deductions—that is, above-the-line business
expense deductions for the following:
the “direct expenses” of the home office—e.g., the costs of
painting or repairing the home office, depreciation deductions for furniture and fixtures
used in the home office, etc.; and
the “indirect” expenses of maintaining the home office—e.g., the
properly allocable share of utility costs, depreciation, insurance, etc., for your home,
as well as an allocable share of mortgage interest, real estate taxes, and casualty
In addition, if your home office is your “principal place of business”
under the rules discussed below, the costs of traveling between your home office and other
work locations in that business are deductible transportation expenses, rather than
nondeductible commuting costs. And you may also deduct the cost of computers and related
equipment that you use in the home office, without being subject to the “listed property”
restrictions that would otherwise apply.
Tests for home office deductions. You may deduct your home office
expenses if you meet any of the three tests described below: the principal place of
business test, the place for meeting patients, clients or customers test, or the separate
structure test. You may also deduct the expenses of certain storage space if you qualify
under the rules described further below.
Principal place of business. You're entitled to home office deductions if you use
your home office, exclusively and on a regular basis, as your principal place of business.
(What “exclusively and on a regular basis” means is not entirely self-evident. We can
help you figure out whether your home office satisfies this make-or-break requirement.)
Your home office is your principal place of business if it satisfies either a “management
or administrative activities” test, or a “relative importance” test. You satisfy the
management or administrative activities test if you use your home office for
administrative or management activities of your business, and if you meet certain other
requirements. You meet the relative importance test if your home office is the most
important place where you conduct your business, in comparison with all the other
locations where you conduct that business.
Home office used for meeting patients, clients, or customers. You're entitled to
home office deductions if you use your home office, exclusively and on a regular basis, to
meet or deal with patients, clients, or customers. The patients, clients or customers must
be physically present in the home office.
Separate structures. You're entitled to home office deductions for a home office,
used exclusively and on a regular basis for business, that's located in a separate
unattached structure on the same property as your home—for example, an unattached
garage, artist's studio, workshop, or office building.
Space for storing inventory or product samples. If you're in the business of
selling products at retail or wholesale, and if your home is your sole fixed business
location, you can deduct home expenses allocable to space that you use regularly (but not
necessarily exclusively) to store inventory or product samples.
Amount limitations on home office deductions. The amount of your home
office deductions is subject to limitations based on the income attributable to your use
of the home office, your residence-based deductions that aren't dependent on use of your
home for business (e.g., mortgage interest and real estate taxes), and your business
deductions that aren't attributable to your use of the home office. But any home office
expenses that can't be deducted because of these limitations may be carried over and
deducted in later years. We can help you figure out how these limitations affect your home
Sales of homes with home offices. If you sell—at a profit—a home that
contains, or contained, a home office, the otherwise available $250,000/$500,000 exclusion
for gain on the sale of a principal residence won't apply to the portion of your profit
equal to the amount of depreciation you claimed on the home office. In addition, the
exclusion won't apply to the portion of your profit allocable to a home office that's
separate from the dwelling unit. Otherwise, the home office won't affect your eligibility
for the exclusion.