There are only two rules to claiming the home office deduction.
- It needs to be used regularly
and exclusively for your business and
- It needs to be your principal
place of business.
(In addition, if
you're working at home for an employer, your home office must be for the
convenience of your employer – not just
you. This means if your
employer lets you telecommute as an option, you can't take the deduction.
However, if your employer doesn't have their own office or workplace, forcing
you to work from home, you may be able to claim the deduction.)
Look closely at the
regularly and exclusively rule:
Let's
say you turned an unused bedroom into your office and installed a computer with
its own high-speed connection. You go in there 4-6 days every week, building websites. The room is used strictly for business – contacting prospects and clients,
meeting with them, and working on their websites. In this case, your office
would meet the regular and exclusive use
requirement.
On the other hand,
if you or a family member occasionally go into your office so they can watch
movies or play games on your computer, your office is no longer being
exclusively used for business.
Principal place of business. This doesn't
necessarily mean that the majority of your business activities need to take
place in your home office.
What it means is
that you use your home office regularly
and exclusively to administer or manage your business, and that
substantial administration or management activities for your business are not
conducted at any other fixed location.
Here's an example:
Larry just started a new consulting business, and has set aside a spare bedroom
as his office which he only uses for business purposes. Currently about 85% of
his time is spent outside the home, meeting potential clients in various restaurants
and coffee shops. However, he does all his scheduling, planning, bookkeeping,
etc. from his home office. These administrative and managerial activities
qualify his home office as his principal place of business, even though he's
spending the majority of his time outside of his home office.
If you have a regular job in addition to
self-employment: The "principal place of business" question
refers to your self-employment activities, not your regular job.
