Tax Tips
Home Office Deductions - May 2005
Richard Scrivanich - Partner
Telecommuters and the Home Office
For many individuals who work from home, the home office deduction can provide a significant tax break, allowing deductions for property taxes and mortgage interest, as well as many other possible expenses ranging from utilities to depreciation. Many employees who “telecommute” from home wonder if they can take advantage of this deduction.
Convenience of the employer
The tax law provides specific rules for determining who qualifies for a home office deduction. While there are a number of rules, one of them applies specifically to employees: In order to qualify to use a part of your home for business, your business use must be for the convenience of your employer.
The Tax Court has ruled that you meet the “convenience of the employer” requirement if:
- You maintain your home office as a condition of employment—in other words, if your employer specifically requires you to maintain the home office and work there;
- Your home office is necessary for the functioning of your employer’s business; or
- Your home office is necessary to allow you to perform your duties as an employee properly.
- According to the IRS, whether the business use of your home is for your employer’s convenience depends on all the facts and circumstances. However, business use is not considered to be for your employer’s convenience merely because it is appropriate and helpful.
If your employer requires you to telecommute you may qualify, especially if your employer does not make on-premises office space or another fixed location available for you. In this situation, you should have your employer put in writing that you do not have office space available and, as a result, your job requires you to work solely from an office at home.
However, the many telecommuters who have access to office space on the employer’s premises are unlikely to qualify except in unusual circumstances.
Special circumstances may provide deduction
There may be unusual situations in which an employee is not required to work from home, but where the home office is necessary to perform his or her duties. However, these circumstances are extremely limited. For instance, in one court case, a college professor maintained and used a home office for scholarly research and writing activities, which were a requirement of his position. His employer provided him office space that had to be shared with other professors. However, that space was not a safe place to leave teaching or research materials. He also had access to the college library, but there was no private space in the library in which he could work. Under these circumstances, the court concluded that the office space on the college’s premises was not suitable for the taxpayer’s research and writing activities, and the taxpayer maintained the home office for the convenience of the employer, and the deduction was allowed.
However, in a similar case, no deduction was allowed. In that case, the court found that the home office was not maintained for the convenience of the employer. Here, the taxpayer, another university professor, was required to do research, and was provided with an on-campus office. The court found that, although the taxpayer’s on-campus working conditions were bad—his office was small, crowded, and noisy, and there was inadequate security-this simply demonstrated that his use of a home office was for his, and not for his employer’s, convenience.
In yet another case, a woman sometimes worked at home in the evenings because her employer’s downtown Los Angeles office building was closed during the nighttime hours she needed to work. In addition, her employer preferred employees to have a home office if it promoted time management and productivity. Even in this situation, the court denied a deduction.
What does this mean for the typical telecommuter?
Unfortunately, because of the above rules, most telecommuters will not qualify for the home office deduction. In addition, even if above requirements are met, there are other rules that still must be met to qualify for the deduction, such as the exclusive use and regular use requirements, as well as a purpose-of-use requirement.
The bottom line: If you are a telecommuter, you have many benefits, such as less commuting time and expense, and perhaps even the ability to work in your pajamas, but you are unlikely to be able to count the home office deduction among those benefits. However, if some of the exceptions described above sound similar to your situation, please call us to discuss if you may qualify.
If you have any questions regarding the tax rules for telecommuters and the home office deductions or any other tax matter, please call me at (562) 698-9891.
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