Rules for the Deduction of Home Office Expenses
In order to qualify as expenses, your office must be your principal place of business and used regularly and
exclusively. Under IRC §280(A)(c), a home office qualifies as a principal place of business if the office is being used
to conduct administrative or management activities and there is no other fixed location where the taxpayer conducts
substantial administration or management activities.
Activities that are administrative or managerial in nature include billing customers, clients or patients, keeping books
and records (accounting), ordering supplies, setting up appointments, and forwarding orders or written reports.
Exclusive use is met only if there is no use of the business portion of the home at any time during the tax year other
than for business purposes. Anything beyond a de minims personal use will violate this rule. For example, if family
members use the office for TV watching, or as a guest bedroom.
Regular use requires that the portion of the home used for business must be on a continuing basis and is used for
meeting with patients, clients or customers or for administrative purposes. Occasional or incidental business use will
not be sufficient even if the area is used exclusively for business. Exemptions apply for Doctors, dentists and other
professionals, as well as barbers, beauticians, and others who operate their business from home, but do not meet
with clients or customers.
The following are examples of situations where the taxpayer’s home office will qualify (See IRS Pub 587):
Jay Black is a self-employed plumber. Most of his time is spent at customers’ homes and offices installing and
repairing plumbing. He has a small office at his home that he uses to phone customers, order supplies, and keep
books. Jay uses a local bookkeeping service to bill his customers. Jay’s home office qualifies as his principal place
of business and he may deduct expenses for its use. He uses the home office for administrative and managerial
activities of his plumbing business and he has no other fixed location where he conducts these activities. The fact
that his billing is done by another company does not affect the principal place of business determination.
Jean Green is a self-employed sales representative for several different product lines. To make sales, she visits her
customers at various locations throughout her territory. Jean uses her home office to set up appointments and write
up orders and sales reports. She occasionally writes up orders and sets up appointments from her hotel room when
she is away on business for short periods of time. Jean’s home office qualifies as her principal place of business and
she may deduct expenses for its use. She conducts administrative or management activities there and has no other
fixed place where she conducts such activities. The fact that she conducts such administrative or managerial
activities in her hotel room (not a fixed location) does not disqualify her home office as her principal place of
business.
Sarah Brown is a self-employed anesthesiologist. She spends the majority of her time administering anesthesia and
post-operative care in three local hospitals. One of the hospitals provides her with a small shared office where she
could conduct administrative or management activities. Instead of using the office at the hospital, Sarah uses an
office in her home to contact patients, surgeons and hospitals regarding scheduling, prepare for treatments and
presentations, maintain billing records and patient logs, satisfy continuing medical education requirements, and read
medical books and journals. Sarah’s home office qualifies as her principal place of business. She conducts
administrative or managerial activities for her anesthesiology business there and not in any other fixed location. Her
choice to use her home office instead of the hospital office does not disqualify her home office as her principal place
of business. Her performance of substantial nonadministrative or nonmanagerial activities (treating patients) at fixed
locations outside her home (the hospitals) also does not disqualify her home office as her principal place of
business.
An accountant regularly and exclusively uses one room of her home to oversee her investment in real property. If
only one piece of property were involved, the deduction could be denied because of a lack of any systematic or
continuous activity. But if she owned and managed several pieces of real property, her activity would probably be
considered a distinct trade or business and, if all of the other requirements were met, the deduction would be allowed.