8753 / When is a taxpayer entitled to deduct expenses incurred in maintaining a home office?

Editor’s Note: The 2020 CARES Act did not change the rules governing the home office deduction. While more employees are working from home in the wake of the coronavirus pandemic, the business expense deduction for home office expenses of employees remains suspended under the 2017 tax reform legislation’s suspension of all miscellaneous itemized deductions. Only self-employed taxpayers are entitled to the existing home office deduction.

A taxpayer is only entitled to deduct expenses for a home office if the taxpayer is able to meet the restrictive requirements imposed by the IRC and the courts with regard to this business deduction. A deduction for use of a part of the taxpayer’s residence as an office will not be allowed unless a portion of the dwelling is used exclusively and on a regular basis as (a) the principal place of business for any trade or business of the taxpayer; or (b) the place of business used by the taxpayer for meeting patients, clients or customers in the normal course of the taxpayer’s business.¹ If the taxpayer uses a separate structure as a home office, the use requirements are less restrictive and the use must only be “in connection with” the taxpayer’s trade or business.² A home office will qualify as a taxpayer’s principal place of business if both of the following are true:

(1) The taxpayer uses the home office exclusively and regularly for administrative or management activities of the trade or business; and

(2) The taxpayer has no other fixed location for conducting substantial administrative or management activities of the trade or business.³