Home Office Deduction

The IRS and the Tax Courts have recently made the Home Office deduction much more attractive. They have eliminated most of the extra tax you pay when you sell your home. You still must recapture the depreciation you took in prior years, but there is no other taxable gain. Recapturing the depreciation is not so bad. The good news is you do not have to pay back the FICA tax you previously saved. There is also the time value of money on the income tax savings and a new simplified method for Home Offices.

Claiming the Home Office also documents and legitimizes your mileage expense. Business miles for a person working out of their house start when you leave the driveway. IRS has argued in Tax Court that business mileage, without the home office, does not start until you reach the client’s office. To be on the safe side, I am advising people to claim the Home Office whenever possible, even if it is for a small amount. The business mileage deduction is usually a large amount and I want as much support for that deduction as possible.

Be sure you meet the rules for Home Office, exclusive use being the big one. You must have a room or designated area used exclusively for business. Be sure to watch out for insurance problems if customers come to your house. Does your insurance cover you if customers slip on the ice or trip on the carpet in the hallway?