Home Office Deduction?

[telephus44]

My husband accepted a position in May that has him working from home full-time. We have temporarily bought some furniture and set him up in the living room, but are going to be building him an office in the basement this month.

If I want to try and take this as a home office deduction, can I deduct the costs of building it? Furniture costs? Also, what other things do I need to be careful about? DH is insistent that the door has to have a lock in order to "count" and that it cannot contain any personal effects at all. I'm pretty sure that's an over-reaction, but I'm wondering if anyone has any general advice. He's in a technical support position, so he doesn't have clients over. Work does supply most, but not all, of the equipment.

[TheOtherMe]

A home office is a section of your home that is used exclusively and regularly as a principal place of business. If your husband is an employee, he will need a letter from the employer stating that he is required to have an office in the home.

The costs of building a office in the basement would need to be capitalized and depreciated. He doesn't need a lock, but there can not be any personal use.

See Form 8829 on the IRS website for the types of things you can deduct. The percentage of business use square footage of the office/total square footage of home is what will be allowed on many of the expenses.


Here is what the IRS says about office in the home:

Tax Tip 2011-53, March 16, 2011


Whether you are self-employed or an employee, if you use a portion of your home for business, you may be able to take a home office deduction. Here are six things the IRS wants you to know about the Home Office deduction

1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:

as your principal place of business, or

as a place to meet or deal with patients, clients or customers in the normal course of your business, or

in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.

2. For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.

3. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home to figure your home office deduction and report those deductions on line 30 of Form 1040 Schedule C, Profit or Loss From Business.

6. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.

[mwcpa]

to add to theo's good reply and to emphasis the part of the office in the home rules that make it so difficult for employees to qualify... www.irs.gov/businesses/small/article/0,,id=204169,00.html

"Additional tests for employee use. If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed above plus:

Your business use must be for the convenience of your employer, and
You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.
If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home."

And, let's not forget the 2% AGI haircut (as this is an unreimbursed employee business expense, subject to that rule) and AMT (unreimbursed employee business expenses are considered a special item and not deductible in the AMT calculation)

[rangerj]

If you qualify all of the home office costs have to be accumulated (capitalized) and depreciated over 39 years, that is the period of depreciation for commercial use buildings. Include building permits, engineering costs, and all other construction costs. Watch out for local ordinances that prohibit commercial use of residential property as well as home owner associations that have deed restrictions with similar prohibitions. Office furniture is generally 7 year depreciation and computer equipment is 3 years.

[rangerj]

If you qualify all of the home office costs have to be accumulated (capitalized) and depreciated over 39 years, that is the period of depreciation for commercial use buildings. Include building permits, engineering costs, and all other construction costs. Watch out for local ordinances that prohibit commercial use of residential property as well as home owner associations that have deed restrictions with similar prohibitions. Office furniture is generally 7 year depreciation and computer equipment is 3 years.

[mwcpa]

ranger.... you may want to check the computer equipment life.... it's 5, not 3 years.... see IRS publication 946 table B-1, asset class 00.12....