Claiming deduction for home office will attract IRS attention
By Sandra Block
USA Today
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A recent analysis of American commuting habits confirms what many weary workers already know: Commutes are getting longer.
One way to escape gridlock is to work from home. You'll get more sleep, and you may be eligible for some tax breaks. The home-office deduction lets you deduct a portion of your mortgage interest or rent, utilities, insurance and even repairs to your home.
But be careful. In a fact sheet it issued in September, the IRS said that understated business income and overstated business expenses are "an area where compliance is a concern." Translated, that suggests you're more likely to be audited if you claim the home-office deduction.
Not everyone who works at home is eligible to claim a home-office deduction. Even those who are eligible must meet some fairly rigorous IRS requirements. A couple of points to keep in mind:
People who work from home because their employers don't want to provide them with office space are eligible to deduct some of their home-office expenses. If your employer does provide you with an office or a cubicle, you don't qualify, even if you work from home most of the time, says Keith Stanton, an enrolled agent in Nashville.
Once you've established that you're eligible for the deduction, you've got another hurdle to clear. Your home-office expenses are categorized as miscellaneous expenses on Schedule A of Form 1040. Those expenses must exceed 2 percent of your adjusted gross income (AGI) before you can deduct them, says Mark Luscombe, tax analyst for tax publisher CCH.
If you're self-employed, your deductions aren't subject to the AGI floor. Your expenses are tallied up on Form 8829 and filed with Schedule C. But self-employed taxpayers must meet another test that applies to everyone who claims a home-office deduction:
Cell phones and wireless Internet access have made it possible for people to work just about anywhere. But you can't claim the home-office deduction unless you designate a portion of your home exclusively for business.
Ideally, your home office should be a separate room that isn't used for anything else, Meighan says.
But if you don't have any extra rooms to spare, he says, your home office could be as simple as a card table in the corner of your bedroom.
Workers who qualify for the home-office deduction can deduct a long list of expenses related to the cost of owning and maintaining their homes. The easiest way to do this is to figure out what percentage of your home is used for business. For example, Stanton says, if your home office is 200 square feet and your house is 2,000 square feet, you can deduct 10 percent of your homeowner insurance and utilities.
