Bell & Schneider, PLC

Staking Your Home Office Claim

So, you've been thinking about working from home and feeling almost giddy as you picture all the perks: No more road-gladiator commutes every morning! Working in your bathrobe! Not to mention the extra money from that cushy tax deduction for home office space!
Well, don't spend the extra money just yet. IRS legislation that took effect this year opened up rules for qualifying for-home office deductions, but not all of the 20 million Americans estimated to work at home will be able - or want - to claim them. Home office deductions have traditionally been a red flag for IRS auditors, and have been so restrictive that, for example, on 517,969 even claimed the tax breaks in 1996.

Renters, who have been locked out of the standard mortgage deductions that homeowners can claim, will benefit the most from the new rules, which will go into effect with filings for the 1999 tax year. Renters will actually get bigger home office breaks than homeowners and can claim business expenses that won't jeopardize other deductions. For example, if half of your apartment is used as a home office, you deduct half your rent and utilities. The tax breaks are permanent.

But homeowners have to determine what portion of the home is used as an office, multiply that percentage by the value of the home - exclusive of land - and, finally, compute depreciation. After that, the deduction lasts only as long as the owner stays in possession of the house. If it's sold, still further computations - and dollars - are required.

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