Deducting Your Home Office: When You Can (And Can't)

Last Updated Apr 12, 2010 9:55 AM EDT

As April 15 approaches, MoneyWatch is publishing daily tax tips. See the full list here, and please check back frequently for the latest advice from our experts.
When the time comes to pay my taxes, I realize that I am that worker of the future that I always used to hear about. I don't have a jetpack or a flying car, but I do have a Schedule E, two Schedule Cs, and of course a separate AMT calculation that I can't make heads or tails of (thank you beloved accountant Mark Kornspan!)

What I don't have, though, is a giant home office deduction. Although I work from home a lot -- in fact, it's been four years since I had a traditional office job with bennies -- I still can't pass muster for the tests to deduct much for my home office. Can you? Let's review the tests:

1) Principal place of business. I'm a Realtor, so I work out of my home a lot. My principal place of business is, in many ways, whatever co-op or condo I happen to be selling at the time. But my real estate agency has a desk available for my use, and I can meet clients there -- so the IRS would probably argue that's my "principal" place of business. (Actually, if client contact is the test, I'd argue my principal place of business is Starbucks.) I don't pass this test as a real estate agent. One Schedule C down.

But on the other hand, I'm a writer, and Moneywatch doesn't have a desk for me. My writing comes from my home, so there's still hope for me to deduct my home office based on my writing business. On to Test Two.

2) Regular and Exclusive Use. This test is exactly what it sounds like: I regularly work at my dining room table, but I don't exclusively work there. Dining room table out. I regularly work sitting on the sofa, but I watch TV sitting on it too. Sofa out. My desk, on the other hand -- I don't do anything else at my desk, except work. So I pass that test -- but since my desk isn't that much of my apartment, it only allows for a small deduction.

The best way to really prove exclusive use is to have a separate room or even part of a room that's nothing but your office. That means it must be yours -- not used by kids or spouse. If you work out of your garage, then you can't park your car and bikes there and expect the IRS to share your costs.

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  • Alison Rogers

    Since graduating from Harvard summa cum laude, Alison Rogers has been a reporter, an editor, a real-estate agent, a Wall Street desk jockey, a columnist, a failed flipper, and a landlady. A member of the National Association of Realtors, she currently sells and rents luxury co-ops in Manhattan for the Chelsea-based firm DG Neary. (If you've got $27,500 a month, the firm has an apartment for you!) Her book, Diary of a Real Estate Rookie, was called "a valuable guide for rookie buyers" by AOL/Walletpop, "beach-read fun" by the New York Observer, and "witty" by Newsweek.

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