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Home-office tax deduction, part 1: what 'exclusive' means

With so many people now self-employed, or working at home on employer-provided laptops, the home-office tax deduction has become more important than ever.

It's been awhile since we last wrote about this deduction. As we noted last year in our March 29 post, it's a deduction that has to be handled with care. It has to be handled with care because if you try to take the home-office deduction when you aren't actually eligible for it, it could increase your chances of a tax audit.

In this two-part post, let's discuss the guidelines that must be met in order to take a proper tax deduction for home-office expenses.

A key concept in these guidelines is that a portion of the home must be used exclusively for the office in order for the deduction to apply.

"Exclusive" is a fairly strict test to meet. It means that you can't use the home-office area for anything else and still claim the deduction. Merely using the office area primarily for business would not suffice; the use must be exclusive, not merely primary.

This doesn't mean, however, that your business has to be a full-time job in order for you to claim the deduction. It is certainly possible to be self-employed on a part-time basis. Indeed, many self-employed people enjoy their ability to control the number of hours they work per week.

But this does not necessarily mean that working only a few hours a week in a home office is enough to qualify for the exemption. To an IRS agent inclined to conduct a tax audit, infrequent use of the space for money-making purposes may undercut the case for the deduction.

And what about people who are not self-employed, but who sometimes work from home on a flex-work basis? We will try to address that question in an upcoming post.

Meanwhile, in part two of this post, we will discuss the simplified calculation for home-office expenses that is now available to taxpayers who qualify for it.

Source: The Huffington Post, "Tough Rules for Home-Office Deductions," Julian Block, Jan 2, 2014

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