Home Office Deduction - Do I qualify

Home Office Deduction - Do I qualify
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Hi,

I’m slogging through my taxes and I’m wondering if I qualify for the home office deduction. I’ve always passed on it because even setting aside whether my situation qualifies or not, the paperwork and calculations always seemed unreasonably onerous for the reward. I just learned however, that there is now a simplified rule which allows you to simply deduct $5 per square foot up to 300 square feet. This makes the deduction much more tempting.

But do I qualify? The deduction is aimed primarily at people who run their businesses out of their homes and I don’t; I am a salaried employee. Based on what I’ve been able to find; even as an employee, the deduction is still a possibility, but only if I am working from home as a convenience for my employer and not as a convenience for myself. In other words, if I’m working from home, just because I like it, I don’t qualify, but if I’m working from home because my employer doesn’t have any space for me, I do. That seems straight forward, though I’m not sure how it applies to my situation. I am a 100% remote worker for a very large software company. They have plenty of space available for me, though the nearest office is 200 miles away. So, it’s not clear to me for whose convenience I am working from home.

I can’t imagine that my situation is very unique, but I haven’t had much luck tracking down an answer. Are there any CPAs on the board who might opine here? (I’m also open to wild ass guesses from truckers or plumbers or whatever).

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I’d start (and finish) with the top 3 google result for “home office deduction employer benefit”.

I believe that since you are not required to maintain a home office as a condition of employment, you do not qualify for the home office deduction.

Furthermore, if you own your home, I believe the home office deduction reduces your cost basis and is recaptured upon the sale of your home, so the benefit may be even less than you might think (unless you plan to never sell). Last I checked, the rule for renters was to pro-rate rent per square foot. I don’t know if the simplified rule you mentioned had any effect on this.

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The test is purposefully nebulous, and you will never get an answer (ruling) unless you claim the deduction and the IRS challenges you.

That being said, does your employer provide you with an office at that location 200 miles away? And is there plenty of room, even if everyone showed up at once? I think those might be important questions.

I am not your lawyer.

I don’t think that matters. Even if they don’t currently have an office for him and even if everyone couldn’t fit, as long as working from home is not a condition of employment, it’s pretty clear to me that he doesn’t qualify.

From Pub 587: “The use of property as a condition of your employment means that it is necessary for you to properly perform your work. Whether the use of the property is required for this purpose depends on all the facts and circumstances. Your employer does not have to tell you specifically to use the property. Nor is a statement by your employer to that effect sufficient.”

I don’t think it’s as clear-cut as you’re saying.

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Thanks guys for taking the time to reply. Having done a bit more research, the good news is that I think that I do definitely qualify for the deduction. The bad news is that it is subject to the 2% rule (ie, I can only deduct the amount that exceeds 2% of my AGI) which makes the $1500 allowance (300 x $5/sq ft) a moot point.

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Check the other items in the 2% category to make sure you can’t cobble a few together to make it work.

I think (hope) that the simplified rule allowed the deduction without dealing with depreciation or recapture. That’s why I finally started using it in 2012 or 13.

Based on what I’ve read I don’t think that it triggers any mark down in basis. The only caveat I’ve seen is that if you use the simplified method you can’t also depreciate the office as a business asset. That’s my layman’s understanding of what I’ve been reading anyway.

aside: I can’t figure out how to quote someone else’s post in a reply. I click the ‘Reply’ link under a specific post and would expect my response to include a blockquote but that’s not happening. What am I missing?

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Just highlight the section that you want to quote, and the “Quote” option will magically appear. :slight_smile:

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What will they think of next?

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The ability to easily quote from a phone?

If your employer provides you with an office and does not require you to work from home then you can not take the deduction.

Also to take the deduction you technically have to use the space in your home exclusively for work. Just my assumption that most people taking it cheat on that requirement.

https://www.irs.gov/faqs/sale-or-trade-of-business-depreciation-rentals/depreciation-recapture/depreciation-recapture-3

Regular Method - No, all allowed or allowable depreciation must be considered at the time of sale. You can generally figure depreciation on the business use portion of your home up to the gross income limitation, over a 39 year recovery period and using the mid-month convention. As long as you determine actual expenses and the correct amount of allowed or allowable depreciation, the depreciation reduces the basis of your home accordingly, whether or not you actually claim it on your tax return.

Simplified Option - There’s a simpler option, as announced in Revenue Procedure 2013-13, where qualifying taxpayers may use a prescribed rate ($5 per square foot limited to 300 square feet) to compute their business use of home deduction. This option used in lieu of determining actual expenses has the advantage of reducing taxpayers’ recordkeeping burden. Under this option, depreciation is treated as zero and won’t reduce the basis of your home.

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Why doesn’t your employer have a written policy requiring you to maintain a home office as a condition of employment?

Probably because @is1971 hasn’t written it for them. :slight_smile:

Speculating, but maybe they can’t write off the office space as an ordinary and necessary business expense if they require the employee to have a home office? Or maybe just because it isn’t really a condition for employment, and employers aren’t always willing to lie for your benefit.

I don’t see why they wouldn’t be able to deduct the cost of an office simply because an employee has access to multiple different offices. There are people that have 2 dedicated offices in the same building.

I didn’t say “why doesn’t your employer write a letter saying maintaining a home office is required” which would be a lie if it wasn’t true. But instituting a policy is a contract between an employer and employee. The mere existence of a policy cannot be a lie.

Well OP didn’t say that his employer requires that. So its quite possible its not a requirement at all.

I could certainly see a SW company being flexible enough to allow WFH arrangements but not dictate that employees maintain a exclusive office space. Especially when employer in question has ample office space available.