Daily Tax Tip Spotify Podcast and/or WordPress Blog Post and the Home Office Deduction

This Tax Tip Spotify Podcast and/or WordPress Blog Post understands that you are going to be telecommuting from home with respect to your job. As a result, you may be able to deduct certain expenses relating to your home that would otherwise be nondeductible.

However, certain requirements must be met. For Example, you are entitled to a Home Office Deduction for expenses allocable to a specific area of your home that is used regularly and exclusively:

1. As the Principal Place of Your Trade or Business;
2. As a place of business that you use to meet or deal with patients, clients, or customers in the normal course of your trade or business; or
3. With respect to a separate structure next to your home, in connection with your trade or business.

As an employee, in addition to meeting the above tests, you must also satisfy two additional tests:

• First, the business of your home must be for the Convenience of Your Employer.
• Second, you must not rent any part of your home to the employer for the purpose of your performing services for that employer.

In order to meet the Convenience of Your Employer test, it is not enough that the use of your home is merely appropriate and helpful to your job. Instead, the use of your home office must be a business necessity.

To qualify for the home office deduction, a specific area of your home must be used Exclusively and Regularly for Business Purposes. Generally, the exclusive use requirement is an all-or-nothing standard. Thus, the exclusive use test is met with respect to a portion of your home only if there is no use of that portion of the home at any time during the tax year other than for business purposes. The exclusive-use test may be met if that portion of the home is used for more than one business purpose; however, it is not met if that portion of the home is used for any purpose other than a business purpose. The regular use test is met if you use that exclusive area in your home regularly for business purposes. This is generally a facts and circumstances test.

If you qualify for the home office deduction, you must allocate the expenses of operating your home between the business use of your home and the personal use of your home. The determination of the portion of such a home operating expense that you can allocate to the Business Use of Home depends on whether the expense is direct, indirect, or unrelated to the business use. It also depends on the percentage of your home used for business.

Direct Expenses are home operating expenses that are paid or incurred only for the part of your home used for business. Examples include the expenses that are done only in the area of the home used for business purposes. Such direct expenses are deductible in full as home office expenses.

Examples of Direct Expenses include the expenses of (not all inclusive):

• Depreciation of your Home
• Casualty Losses (see 8829 and Instructions)
• Deductible Mortgage Interest (see 8829 and Instructions)
• Excess Mortgage Interest (see 8829 and Instructions)
• Real Estate Taxes (see 8829 and Instructions)
• Insurance,
• Painting,
• Rent,
• Repairs and Maintenance
• Utilities
• Other Expenses (see 8829 and Instructions)

Indirect expenses are home operating expenses that are paid or incurred for keeping up and running the entire home. Such indirect expenses are deductible as home office expenses based on the percentage of your home used for business.

Examples of Indirect Expenses include the costs of (Not all inclusive):

• Depreciation of your Home
• Casualty Losses (see 8829 and Instructions)
• Deductible Mortgage Interest (see 8829 and Instructions)
• Excess Mortgage Interest (see 8829 and Instructions)
• Real Estate Taxes (see 8829 and Instructions)
• Insurance,
• Rent,
• Repairs and Maintenance
• Utilities
• Other Expenses (see 8829 and Instructions)

Unrelated expenses are home operating expenses that are paid or incurred only for parts of your home not used for business. Such unrelated expenses are not deductible as home office expenses.

Examples include of Unrelated Operating expenses:

• Lawn care (on a yard not seen/used for business),
• Painting (on a room not seen/used for business),
• Repairs (on a room not seen/used for business).

Finally, there may be reasons why you might not want to deduct home office expenses. For example, if you are contemplating selling your home and your gain would be otherwise excludible from income, the portion of Gain Representing Recaptured Depreciation (Depreciation Recapture) relating to the home office will not be excludible from income.

As you can see, there are many things to consider in Deducting Home Office Expenses. Please call me at your earliest convenience so we can discuss your individual situation.

Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.

DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260

Toll Free: (877)CPA-Help or (877)272-4357
Cell: (760)567-3110
Fax: (760)836-0968

Email: DonFitchCPA@paylesstax.com
Website: https://www.paylesstax.com

P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.

(Updated 05232021-1 320-400)