If you deduct expenses related to the business use of part of your home, both of these must apply:
You use the business part of your home exclusively and regularly for trade or business purposes. These kinds of uses of your home don’t qualify:
The business part of your home must be 1 of these:
Main place of business
Place where you meet or deal with patients, clients, or customers in the normal course of your trade or business
Separate structure -- not attached to the home -- that you use in connection with the trade or business
Employee Home Office
If you work for someone else as an employee, you can deduct home-office expenses if all of these apply:
You meet the home-office requirements (listed above).
The business use of the home is for the employer's convenience. Factors determining convenience are:
You're required to maintain the home office as a condition of employment.
The functioning of the employer's business isn't possible without the home office.
You can't perform duties properly without the home office.
The employer doesn't provide a space for you to work outside the home office.
The employer requires you to provide your own space.
You don't rent any part of your home to your employer and use the rented portion to perform services as an employee.
Ex: No deduction -- Nolan teaches high school history. He uses a bedroom in his home to exclusively and regularly grade papers and prepare lesson plans. He can't deduct home-office expenses since the school provides him a desk at the school. So, even though Nolan thinks it’s more convenient to work at home, he can’t claim a deduction.
Ex: Deduction -- Andrea works as a telemarketer from her home office for a company located in another city. Since the company provides her with no place to make her calls, she can deduct her home-office expenses. This applies as long as she meets the regular- and exclusive-use requirements.
Exclusive use means you use a specific area of your home only for trade or business purposes. The exclusive-use area:
Can be a room or other separately identifiable space, but it doesn't need to be marked off by a permanent partition
Can't be used both for business and for personal purposes
Can't contain personal-use furnishings like a TV or a couch, though these items are common in many businesses
Ex: Paul is a tax accountant who uses the extra bedroom in his house to prepare clients' returns. When he’s not using the room, his 2 sons use the computer to play video games. Also, overnight guests sleep in the room. Since the room isn't used exclusively for business, Paul can't claim this deduction.
However, you don't need to meet the exclusive-use test if 1 of these applies:
You use part of the home for the storage of inventory or product samples. Your home must be the only fixed location of the trade or business. You must use the storage area on a regular basis, and it must be identifiably suitable for storage.
You use part of the home as a daycare facility for:
People physically or mentally unable to care for themselves
People age 65 or older
You must meet or be exempt from all state licensing or certification requirements. If you don’t meet the licensing requirements or aren’t exempt from them, you must still meet the exclusive-use test.
Regular use means you use part of the home on a continuous, ongoing, or recurring basis.
Linda is a freelance writer who spends 4 hours a day, 5 days a week, writing in her home. She passes the regular-use test.
Joe makes wooden toys to sell. Although he uses a part of his basement to make the toys, he ignores his business most of the time. In 2012, he used his workshop only 3 days, so he fails the regular-use test.
Principal Place of Business
You can have more than 1 business location for a single trade or business. However, if you deduct home-office expenses, your home must be the principal place of business. These factors help determine if a home office qualifies as a principal place of business:
Relative importance of the activities performed in each business location, like:
Selling or delivering goods or services
Amount of time spent at each location
You can claim a home-office deduction if both of these apply:
You use your home exclusively and regularly for:
Administrative activities of your trade or business
Management activities of your trade or business
There's no other fixed location where you conduct substantial:
Administrative activities of your trade or business
Management activities of your trade of business
Ex: Doug’s a self-employed plumber who spends most of his working hours visiting customers, and installing and fixing their pipes. He uses 1 room in his house to:
Make and receive customer phone calls
Do his billing
Maintain his business's books
The room is the only fixed location where he performs administrative activities. So, his home office qualifies as his principal place of business.
Administrative or management activities include any of these:
Billing customers, clients, or patients
Keeping books and records
Setting up appointments
Forwarding orders or writing reports
These activities won't disqualify a home office as the principal place of business:
You have others conduct administrative or management activities at locations other than your home. Ex: Another company does your billing from its place of business.
You conduct administrative or management activities at places that aren't fixed locations of the business, like in a car or a hotel room.
You occasionally conduct minimal administrative or management activities at a fixed location outside your home.
You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Ex: You meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home.
You have suitable space to conduct administrative or management activities outside your home. However, you choose to use the home office for those activities.
More Than 1 Trade or Business
If you work in more than 1 trade or business, follow IRS guidelines to find out if your home office is the principal place of business for each.
A home office might be the main place of business for more than 1 activity. However, each activity conducted in the office must meet all requirements for the deduction. Otherwise, you won't meet the exclusive-use test for any activity.
Ex: Karen is a teacher whose principal place of work is the school where she teaches. She also has a mail-order cosmetics business. She does all of her work for her cosmetics business in her home office, which she uses exclusively for the business. However, she occasionally uses her home office to grade papers for school. Since she doesn’t use the office exclusively for her cosmetics business, she can't claim the home-office deduction.
Place to Meet Patients, Clients, or Customers
If you meet patients, clients, or customers in your home office in the normal course of business, your home office might qualify for a deduction. You must also meet the regular- and exclusive-use requirements.
Ex: Dan sells insurance, and he uses the front room of his home regularly and exclusively for his insurance work. In his front room, he often:
Meets with clients
Listens to sales presentations
Conducts other insurance-related business
Since he meets the regular- and exclusive-use requirements and meets clients there, his home office qualifies for the deduction.
What Expenses Are Deductible?
Deductible home-office expenses include:
Direct expenses to the business part of your home -- like painting and repairs in the area used for business
Business percentage of indirect expenses for maintaining and running your entire home, like expenses for:
You can't deduct expenses for landscaping or lawn care unless you show a business purpose. Ex: You're in a lawn-care business, and you use your lawn as a display to potential clients.