Business Use of Home

Qualifying for a Deduction 

To deduct expenses related to the business use of part of your home, you must meet specific requirements. Even then, your deduction may be limited.

To qualify to claim expenses for business use of your home, you must meet the following tests:   

Your use of the business part of your home must be:

• Exclusive
• Regular,
• Used for your trade or business, AND one of the following:

• Your principal place of business,
• A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or
• A separate structure (not attached to your home) you use in connection with your business.

In addition, if you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use.  You must meet the tests discussed above plus:

• Your business use must be for the convenience of your employer, and 
• You do not rent any part of your home to your employer and use the rented portion to perform services as an employee.   

Partners may be allowed to deduct non-reimbursed ordinary and necessary expenses paid on behalf of the partnership (including qualified expenses for the business use of your home) if required to pay these expenses according to the terms of the partnership agreement.

Exclusive Use  

To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.  You do not have to meet the exclusive use test if either of the following applies.

• You use part of your home for the storage of inventory or product. 
• You use part of your home as a day-care facility.  

Storage of inventory or product samples  

If you use part of your home for the storage of inventory or product samples, you can claim expenses for the business use of your home without meeting the exclusive use test if you meet the following tests:

• You sell products at wholesale or retail as your trade or business. 
• You keep the inventory or product samples in your home for use in your trade or business. 
• Your home is the only fixed location of your trade or business. 
• You use the storage space on a regular basis. 
• The space you use is an identifiably separate space suitable for storage. 

Regular Use   

To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis.  You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose.

Trade or Business Use   

To qualify under the trade or business use test, you must use part of your home in connection with a trade or business. If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use. 

Principal Place of Business   

Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements.    

• You use it exclusively and regularly for administrative or management activities of your trade or business. 
• You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.   

Examples of Expenses 

Potentially deductible expenses include the following.

• Real estate taxes
• Deductible mortgage interest
• Casualty losses 
• Insurance 
• Rent 
• Repairs and maintenance
• Security system
• Utilities and services
• Depreciation

Telephone

The basic local telephone service charge, including taxes, for the first telephone line into your home is a nondeductible personal expense. However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses.

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