Discussion:Calculating home office deduction: apartment bedroom

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Discussion Forum Index --> Consumer Questions --> Calculating home office deduction: apartment bedroom


J.taxyz (talk|edits) said:

9 April 2006
My largest source of income is a salaried position where I work at my employer's premises. However, on the side I do contracting work that requires me to work out of my home, and generates about 10-20% of my overall income as self-employment income.

If I have a dedicated work room at home which otherwise meets all the home office requirements, and is the "primary place of business" for my contracting work, will my other salaried position create any problems for deducting the costs of this home office?

Thanks.

Skhyatt (talk|edits) said:

9 April 2006
Should not create any problems.


J.taxyz (talk|edits) said:

23 December 2006
I share a 2-bedroom apartment with a housemate. The rent is $1800, we each have a bedroom and share all common areas, so we split the rent and utilities 50/50, $900/each rent and about $30/each utilities.

When my housemate moves out, I would like to use the now-spare bedroom as a home office. The bedroom alone is around 20% of the total square footage of the apartment (including bathroom, halls, etc.).

Is my home office deduction proportionate to the amount of space in just that room (20%*$1800=$360), the foregone housemate payments ($930), or something in-between?

Thanks,

Sandysea (talk|edits) said:

23 December 2006
You will calculate the "home office" based on the sq footage of the entire home and the sq footage of your office in that home. So...you will get a portion of the rent, utilities, fees, insurance, etc. that you pay as an indirect cost for the office.

Be careful that you limit this room for ONLY business and not personal at all. Many times people think that a home office can be used for other things and upon audit, it needs to be clear that this room is for business related activities only....just a head's up :)

J.taxyz (talk|edits) said:

23 December 2006
Thanks, I take that to mean the $360 is the proper figure to use. Can I ask some followup questions...

Is any proportion of the common areas that serve support functions during work periods (hallway to main apartment entry, bathroom, kitchen) also proportionately assignable to the office?

If the office bedroom contains a closet which stores non-business items -- but is only accessible through the room -- is that problematic? (Except for reaching the closet, the room would be exclusively used for and filled with business activities.)

Death&Taxes (talk|edits) said:

23 December 2006
Having seen two home office cases tried in Tax Court, I can attest that Sandy is right on, as usual, when she says 'business related only.' In both cases, pre-Soliman, District Counsel went on and on questioning articles in the photos of the room or what was in closets, going so far as to get into an argument about whether a radio was a radio (taxpayer) or 'boombox' (IRS). In neither case did counsel come to grips with broader issues such as place of business. One resulted in taxpayer victory; the second was decided when the Judge, not District Counsel, asked why the taxpayer used his home rather than the limited space at his employer's office three miles away. Taxpayer's reply, "It's a nicer place to work" lost him the case.

Sandysea (talk|edits) said:

23 December 2006
HEHEHE D&T; well...nicer place to work? I'll bet!!

The common areas are just that common areas; they have nothing to do with the business and are not allowed to be included in the calculations.

The closet presents a problem if it stores non business items. Keep closet items non business in another closet. Keep this as clearly business as you can. If you store clothing, shoes, etc. then it could (not absolutely, but could) resort to a disqualification. While you are at it, no sofa bed, no entertainment equipment etc. so you cannot treat it as being able to be used for non business activities....

Lhhesscpa (talk|edits) said:

24 December 2006
J: The most important requirements for the home office deduction is that the space is used exclusively & regularly in the business. Your extra bedroom will qualify if it is used exclusively for your business. That means, for example, no guests or poker games or .... Common areas wont' qualify. By their mere definition they aren't used exclusively in the business. I suggest that you read the section on Business Use of Your Home in Publication 334 to find out pretty much all you need to know about deductions for a home office. -- Larry Hess, CPA | Albuquerque, NM - Talk to me

Solomon (talk|edits) said:

24 December 2006
Publication 587 is devoted to this topic.

CrowJD (talk|edits) said:

24 December 2006
The phone is usually a party to this type discussion too. My understanding is that, as to an business owner anyway, there is no business use percentage of a home phone. So, anticipating this question, she may want to get a separate line.

Sandysea (talk|edits) said:

24 December 2006
I agree Crow. Even cell phones have issues because they can be used business and personal. An ad in the phone book with a separate business line gives the indication that this is truly business.

Same goes for cable and cable modem for high speed access. Very difficult to use a percentage for the home office on that one. If the only computer you have is only business related (yeah, right), then you may not have an issue on audit :)

CrowJD (talk|edits) said:

24 December 2006
Yes, and under an abudance of caution, you may recommend, for a particular type of client, that they purchase what is known as an "all events business coverage policy". Sometimes, I have (unfortunately) found that the bedroom gets the better part of the business, and Owner may, through some intemperate daliance directed at the housekeeper (male or female), find himself a defendant in a lawsuit for harassement...well, a type of harassment. I can usally peg these clients when they first walk into my office, and for them, I recommend the den, with the curtains open at all times. I would only relate this around Christmas time, as a part of the general merriment of the season.

Sandysea (talk|edits) said:

24 December 2006
hehehe

CrowJD (talk|edits) said:

24 December 2006
And to ground this firmly in the tax law; the policy, being of the P& C variety, and for business use only, is fully deductible, but usually the costs far exceeds the value of the home office deduction. This is in common with the fact that the amount of (unbillable) accountant time in figuring the home office deduction often exceeds the deduction!!!

Pacdallas (talk|edits) said:

24 December 2006
I understand that the most home offices are hardly 10% of the total square footage, resulting in a minimal deduction. Given the fact that such returns are more likely to be picked for audit, I wonder if it is really worth it. Any comments?

Also, I pay a flat fee for my cell phone which is my business phone. How do I account for the personal calls I get from my family and friends when taking the business deduction for the phone?

CrowJD (talk|edits) said:

24 December 2006
I don't think the service is looking at it with the same ferocity as it used too, they have lost so many times over the issue. And the law is more liberal now. Is it worth it? A lot of times it can be. But try explaining to clients if and when the day of depreciation recapture on the business use portion comes about! More than anything, it's a pain in the neck for preparers.

Lhhesscpa (talk|edits) said:

24 December 2006
Telephone service is not part of the home office deduction. A deduction is not allowed for the first line into a home even if it is used for business. A portion of the cost of second lines, fax lines, cell phone lines, etc. is deductible based on the business use percentage. For cell phones at least there is often an itemization of calls that can be used to determine business. For wired phone lines I recommend to clients that they should use some sort of fact-based, objective methodology. -- Larry Hess, CPA | Albuquerque, NM - Talk to me

Taxea (talk|edits) said:

26 December 2006
Re business cel vs personal use: divide business minutes into total minutes to get business percentage.

If closet has personal use items don't include it in the office square footage. Home phone: monthly service not deductible...business long distance is. 2nd line-use it only for business purposes and you can take the entire expense.

Rruth (talk|edits) said:

26 December 2006
Currently have a client under audit for home office. Auditor is asking for photos of home office. Unfortunately my client moved, and didn't take pictures. Recommend taking pictures while the home office is active.

Death&Taxes (talk|edits) said:

26 December 2006
Very good point! Go to the realtor who sold the house and get the description, and any other photos etc from the file. 'Virtual tours' on line were all the rage when I bought this house, and maybe there is something on record. Draw a diagram on graph paper, or by computer, to scale. Remind the auditor that photographs are only a record of one particular second in history. With a good diagram, you client's testimony might salvage this. I have had four auditors tell ths story of doing a field audit in a taxpayer's home office, finishing and leaving, then realizing that they forgot something. "And when I drove up, a furniture rental truck was taking away the desk and office furniture," is the punchline. I wonder if agents are taught this 'joke' in training for they all tell it the same. I will usually say, 'look, no marks on the rug from furniture being moved around' if and when they come in.

Waynecpa (talk|edits) said:

26 December 2006
I agree that the hassle of calculating the deduction is usually not worth the deduction. However if you can make the case for the deduction, then business mileage from the office is deductible and not considered commuting. This can be quite a large deduction (assuming all the mileage logs are kept, of course).

Death&Taxes (talk|edits) said:

26 December 2006
As long as your place of business is your home, you may deduct mileage from your place of business even without deducting a home office. Publication 463 notes only that if you have an office in your home that qualifies as your principal place of business, you can deduct your daily transportation costs.....there is no qualifier that you must deduct same office.

LAEsquire (talk|edits) said:

9 April 2007
All I can say is not worth the deduction!? Here in California, it can be huge - certainly $1000s, not $100s in many cases.

Also, not sure why a TV or radio to watch or listen to while working at home is a big no no, while flat screen TVs and large entertainment centers are common in executive offices (and small radios almost de riguer at secretarial stations in office buildings) are not questioned by the IRS...

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