By Richard Schwartz, CPA
Every tax season, I have several clients that I meet with excitedly inform me that they have finally purchased a new home. And often times, the next bit of information they communicate to me, is that the new house has a home office. However, having a room in the house to do work in versus using a dedicated area of the home that meets the rules of and qualifies as a deductible home office are often two different things.
What is a Qualifying Home Office Space:
In order to meet the rules as a qualifying home office resulting in a business deduction on your personal tax return, the home office space must be a separate section of your home used regularly and exclusively in connection with a trade or business. The qualifying space typically would be a separate and identifiable room within your home. However, the qualifying space could also be a section of a room, whether visibly partitioned off from the remainder of the room or not, as long as it is clearly distinguishable as being set aside for business purposes. A common example of this setup would be a radiologist performing services for a hospital at his home and who has set up a desk with a computer, medical equipment and fax machine positioned in the corner of a second bedroom.
Key Rules – Regular and Exclusive Use:
Once you have determined that you have a qualifying space set aside for the home office the next two criteria are key to satisfy the home office rules: regular and exclusive use. The space must be used on a regular basis. This does not necessarily mean that the office must be used daily, but it should be used on a continual basis throughout the year (or period claimed as a home office). Occasional and infrequent use of the room would not meet the home office qualification. The second qualification, exclusivity, requires that the space be used exclusively for business and not for personal purposes. If the space is mixed use, both personal and business, then this portion of your home would not qualify as a home office. Placing your laptop on the family room coffee table to do patient billings while watching TV would certainly not meet any home office rules, even though your primary intent, billing patients while working at home, is connected to your business.
What if you have Multiple Business Locations:
As noted above, the use of the home office must be in connection with your trade or business. Additionally, having a second or multiple business locations to see patients or customers does not disqualify the deduction for your home office. You may be a dentist with two office locations, one being in the basement of your residence and the other being in a neighboring town. Having the second location does not disqualify the home office deduction. Being connected with your trade or business extends to administrative work as well. Using your home office to do your patient scheduling and billing, and to maintain your accounting and recordkeeping also qualifies the home office for business use – even if you see no patients at your home office but have office visits at another location such as the hospital of clinic.