IRS Guidance on Home Office Deductions

WASHINGTON - The Internal Revenue Service has issued additional guidance on when the expenses for an office in the home may be deductible. The explanation contains several examples applying the tax law to situations involving taxpayers who work at home.

This home office expense guidance illustrates the principles of last year's Supreme Court decision in "Soliman" for determining the principle place of business. A taxpayer must first compare the relative importance of the work done at each business location, considering the particular characteristics of the business. Great weight must be given to such factors as where the taxpayer delivers goods or services to customers and any special facilities required by the job.

If the relative importance comparison does not identify a principle place of business, the taxpayer must compare the time spent at each business location to see if that factor helps to indicate a principle place of business. A person may have two or more business locations but none that qualifies as a principal place of business under these tests.

The principle place of business test is one of several requirements used to determine whether a person can deduct such home office costs as utilities, depreciation, insurance or repairs. The failure to qualify for these deductions does not eliminate otherwise allowable deductions for equipment used in the business. Nor does it affect the tax treatment of interest or taxes, which are deductible regardless of any business activity at the home.

Revenue Ruling 94-24, containing this guidance on the deductibility of home office expenses, will be published in Internal Revenue Bulletin 1993-15, dated April 11, 1994.

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