Expenses related to the rent, purchase, maintenance and repair of a personal residence may not be deducted as a business expense. However, taxpayers who use a portion of their home for business purposes may be able to take a home office deduction if they meet certain requirements.

Homeowners that maintain a home office, or work from home may deduct their expenses including the business portion of their real estate taxes, mortgage interest, rent, utilities, insurance, painting, repairs and depreciation. The amount of depreciation deducted decreases the basis of your property (see your accountant for an explanation of “basis”).

According to the IRS web site

In order to claim a deduction for that part of a home used for business, taxpayers must use that part of the home:

* Exclusively and regularly as their principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of their business, or in connection with their trade or business where there is a separate structure not attached to the home; or

* On a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.

Yet, according to the WSJ article titled “Fear of the Home-Office Deduction”

Even as more Americans work at home, many of them appear to be missing out on valuable home-office tax deductions, an Internal Revenue Service official says.

That article mentions that

Years ago, Congress made changes that allowed more taxpayers to qualify for the home-office deduction. Under that law, your home office will qualify as your principal place of business if you use it exclusively and regularly for substantial administrative activities or management of your trade or business — and you have no other fixed place for your trade or business. Examples of these activities would be billing customers, clients or patients — or keeping books and records.

So, if you qualify for the deduction, by all means see what effect it has on your tax liability. With careful record keeping, using the deduction may trigger an IRS inquiry, not necessarily an audit. Most inquiries can be handled by responding to the IRS mailing.

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