March 23, 1994
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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