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Approximately 1.6 million home owners claim a home office deduction
each year, according to the Internal Revenue Service, and a
single-family home, condo, mobile home, manufactured home, boat or
apartment can qualify.
"Just about anyplace with sleeping and cooking facilities can
qualify for the home office deduction," according to Nolo.com, Berkeley, CA-based legal self-help publisher.
Along with ordinary business expenses for supplies and equipment
you can also deduct part of your rent or take a depreciation deduction
to the extent that a portion of your home is used for business
purposes.
To qualify for the deductions, the IRS requires that you pass three
tests:
Your home must be your principal place of business. If you work
from two locations, in order to take the deduction, the home must be
the most important location, generally, the one where you generate
revenue, but not always. If, you compare the two locations and it's
not clear from which location you generate the most income, also
consider time spent at either location. You must spend most of the
time in the home for it to be the principal place of business under
this consideration. If after you look at revenues and time and you
still aren't clear if your home is the primary place of business, you
probably shouldn't take the deduction, according to Paul and Sarah Edwards,
work-at-home gurus and authors of "Working From Home" (Jeremy P.
Tarcher/Putnam, $18.95).
There are two exceptions to this rule.
New for 1999, if your home office is not your principal place of
business, you can take the home-office deduction if, for part of your
business, you see clients, patients, or customers face-to-face in your
home or use the space for administrative duties, paperwork activities
and other related activities crucial to your business or work.
"A Dr. Soliman took this to court after he was using his home only
for paperwork but did most of his work at the hospital. The Supreme
court ruled against him, but effective Jan. 1, 1999, Congress backed
off," said Bruce Hahn, president of the Arlington, VA-based American Homeowners
Foundation.
Also, if your home isn't your principal place of business but you
use some free-standing structure on your property, exclusively and
regularly for business, you can claim the home-office deduction for
that space. A barn, greenhouse, workshop, studio, detached garage, any
freestanding structure is eligible.
Your home business must also occupy a clear and indentifiable
space in your home. Generally, that means it must be in a location
apart from the rest of your home, say, an addition constructed for
your office, a converted bedroom, attic or basement,but also space in
an alcove, nook or say, large walk-in closet space in a larger room.
You must use your home business space exclusively and regularly
for your business. You can't use your business space, say, to watch
TV with the kids or to play computer games.
"You can't have the guys over to watch the game and have a few
beers in the office," said Hahn.
Editor's Note:
This is part one of a two-part series. Look for the second half of this special installment tomorrow (12/21).
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