Pub 587

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 the business use of your home, you must meet the following tests.

1. Exclusive (however, see Exceptions to Exclusive Use),
2. Regular,
3. For your trade or business, AND

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

Additional tests for employee use. 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:

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

Tax Tip. Whether your home's business use is for your employer's convenience depends on all the facts and circumstances. However, business use is not considered for your employer's convenience merely because it is appropriate and helpful.

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 space identified as separate. The space does not need to be marked off by a permanent partition.

You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes.

Example. You are an attorney and use a den in your home to write legal briefs and prepare client tax returns. Your family also uses the den for recreation. Since the den is not used exclusively in your profession, you cannot claim a business deduction for its use.

You do not have to meet the exclusive use test if:

1. You use part of your home for the storage of inventory or product samples (discussed next), or
2. You use part of your home as a day-care facility, discussed later under Day-Care Facility.

Storage of inventory or product samples. When you use part of your home for the storage of inventory or product samples, the exclusive use test does not apply. However, you must meet all the following five tests.

1. You keep the inventory or product samples for use in your trade or business.
2. Your trade or business is the wholesale or retail selling of products.
3. Your home is the only fixed location of your trade or business.
4. You use the storage space on a regular basis.
5. The space you use is identifiably separate space suitable for storage.

Example. Your home is the sole fixed location of your business of selling mechanics' tools at retail. You regularly use half of your basement for storage of inventory and product samples. You sometimes use the area for personal purposes. The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business.

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.

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.

Example. You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. You do not make investments as a broker or dealer. Since your activities are not part of a trade or business, you cannot take a deduction for the business use of your home.

You can have more than one business location, including your home, for a single trade or business. To qualify to deduct the expenses for the business use of your home, your home must be your principal place of business for that trade or business. To determine your principal place of business, you must consider all of the facts and circumstances. If, after considering your business locations, one cannot be identified as your principal place of business, you cannot deduct home office expenses. The two primary factors are:

1. The relative importance of the activities performed at each location, and
2. The time spent at each location.

Relative importance. To determine whether your home is the principal place of business, consider the relative importance of the activities carried out at each business location. The relative importance of the activities performed at each business location is determined by the basic characteristics of the business.

If your business requires that you meet or confer with clients or patients, or that you deliver goods or services to a customer, then:

• The place where you make contact must be given great weight in determining where the most important activities are performed, and
• The performance of necessary or essential activities in your home office (such as planning for services or the delivery of goods, or the accounting or billing for those activities or goods) is not as important.

Time. If the relative importance of your activities does not clearly establish the principal place of business, such as when you deliver goods or services at both the office in your home and elsewhere, then consider the time you spend. Compare the time you spend on business at your home office with the time you spend at other locations.

Examples of determining the principal place of business.

Example 1. Jane Williams is a self-employed anesthesiologist. Her only office is a room in her home used regularly and exclusively to:

• Contact patients, surgeons, and hospitals by telephone;
• Maintain billing records and patient logs;
• Prepare for treatments and presentations;
• Satisfy continuing medical education requirements; and
• Read medical journals and books.

Jane spends approximately 10 to 15 hours a week working in her home office. She spends 30 to 35 hours per week administering anesthesia and postoperative care in three hospitals, none of which provide her with an office.

The essence of Jane's business as an anesthesiologist requires her to treat patients in hospitals. The home office activities, although essential, are less important to Jane's business and take less time than the services she performs in the hospitals. Since her home office is not her principal place of business, she cannot deduct expenses for the business use of her home.

Example 2. Sam Stone is a self-employed plumber. His only office is a room in his home, which he uses regularly and exclusively to phone customers, decide what supplies to order, and review the books of the business. He also employs Helen Green, a full-time unrelated employee, to perform administrative services in his office such as answering the telephone, scheduling his appointments, ordering supplies, and keeping his books.

Sam spends approximately 40 hours a week at his customers' homes and offices, installing and repairing plumbing. He spends approximately 10 hours a week doing work in his home office.

The essence of Sam's trade or business as a plumber requires him to perform services and deliver goods at the homes or offices of his customers. His home office activities, although essential, are less important and take less time than the work he does in the customers' homes and offices. Therefore, his office in the home is not his principal place of business and he cannot deduct expenses for the business use of the home. The fact that Helen performs administrative activities at his office does not alter this result.

Example 3. Joe Smith is a salesperson. His only office is a room in his house used regularly and exclusively to set up appointments, store product samples, and write up orders and other reports for the companies whose products he sells.

Joe's business is selling products to customers at various locations within the metropolitan area where he lives. To make these sales, he regularly visits the customers to explain the available products and to take orders. He makes only a few sales from his home office. He spends an average of 30 hours a week visiting customers and 12 hours a week working at his home office.

The essence of his business as a salesperson requires him to meet with customers primarily at the customer's place of business. The home office activities, although essential, are less important to Joe's business and take less time than the sales activities he performs when visiting customers. Therefore, his home office is not his principal place of business and he cannot deduct expenses for the business use of his home.

Example 4. Fred Jones, a salesperson, performs the same activities in his home office as does Joe Smith in Example 3, except that Fred makes most of his sales to customers by telephone or mail from his home office. He spends an average of 30 hours a week working at his home office and 12 hours a week visiting prospective customers to deliver products and occasionally take orders.

The essence of Fred's business as a salesperson requires him to make telephone or mail contact with customers primarily from his office, which is in his home. Actually visiting customers is less important to his business and takes less time than the sales activities he performs from his home office. Therefore, he can deduct expenses for the business use of his home.

Example 5. Nelson Lewis is employed as a teacher. He is required to teach and meet with students at the school and to grade papers and tests. In addition to a small shared office at the school, he maintains a home office for use in class preparation and for grading papers and tests. He spends about 25 hours per week at the school, and 30 to 35 hours per week at his home office.

The essence of Nelson's work as a teacher requires him to teach and meet with students at the school. Although the class preparation and grading take more time and are essential, they are less important than the activities at the school. He cannot deduct expenses for the business use of his home. Because his home office is not the principal place of business, it is not necessary to determine whether he maintains the office for the convenience of his employer.

Whether your home office is the principal place of business must be determined separately for each trade or business activity. One home office may be the principal place of business for more than one activity; however, you will not meet the exclusive use test for any activity unless each activity conducted in that office meets all the tests for the business use of the home deduction.

Example. Tracy White is employed as a teacher. Her principal place of work is the school. She also has a mail order jewelry business. All her work in the jewelry business is done in her home office and the office is used exclusively for the business. If she meets all the other tests, she may deduct expenses for business use of her home for the jewelry business.

If Tracy makes any use of the office for work related to her teaching, she would not meet the exclusive use test for the jewelry business. She may not take any home office deduction for either activity because her job as a teacher does not meet the tests for the deduction.

If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if:

• You physically meet with patients, clients, or customers on your premises, and
• Their use of your home is substantial and integral to the conduct of your business.

Occasional meetings and telephone calls do not qualify you to deduct expenses for the business use of your home.

Doctors, dentists, attorneys, and other professionals who maintain offices in their homes will generally meet this requirement.

The part of your home you use exclusively and regularly to meet patients, clients, or customers does not have to be your principal place of business.

Example. June Quill, an attorney, works three days a week in her city office. She works two days a week in her home office used only for business. She regularly meets clients there. Her home office qualifies for a business deduction because she meets clients there in the normal course of her business.

You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers.

Example. John Berry operates a floral shop in town. He grows the plants for his shop in a greenhouse behind his home. Since he uses the greenhouse exclusively and regularly in his business, he can deduct the expenses for its use subject to the deduction limit, explained later.

Pub 334

You may be able to deduct the expenses for the part of your home you use for business. The business use of your home must meet strict requirements before you can deduct any of these expenses. You can take a deduction for the business use of your home only if you use a specific part of it both exclusively and regularly:

1. As your principal place of business,
2. As a place where you meet or deal with customers or clients in the normal course of your business.
3. In connection with your business, if the part is a structure that is not attached to your home.

There are exceptions to the exclusive use test if you:

1. Use part of your home for the storage of inventory or product samples, or
2. Use part of your home as a day-care facility.

Deduction limit. If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all of your expenses for the business use of your home. But if your gross income from that use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. See Publication 587 to find out how to figure the deduction limit.

Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction.