Today many employees work at least part of the time at home. If you use a home office for work, can you take the home office deduction? Maybe, but you'll have to jump through lots of hoops to do it.
Qualifying for the home office deduction is hard to do for an employee. In addition to satisfying the ordinary requirements for the home office deduction, there is an additional hurdle: You must meet the convenience of the employer test.
Convenience of Employer Test
Employees may only take the home office deduction if they maintain the home office for the convenience of their employer. An employee’s home office is deemed to be for an employer’s convenience only if it is:
- a condition of employment
- necessary for the employer’s business to properly function, or
- needed to allow the employee to properly perform his or her duties.
The convenience of employer test is not met if using a home office is for your convenience or because you can get more work done at home. For example, you won’t pass the test if you have an outside office provided by your employer but like to take work home with you. But you would pass the test if your employer doesn’t provide you with an office, or if there is some valid business reason why you must work at home. In one case, for example, an employee was entitled to the home office deduction because her employer required her to perform work during off-hours when her regular office was closed.
If you don’t qualify for the home office deduction, but regularly use your office for work, try to get your employer to reimburse you for your home office expenses. The reimbursement would not be taxable income so long as you properly account for your expenses.
Basic Home Office Requirements
For any home office to be deductible, you must (1) use a part of your home regularly and exclusively for work, and (2) your home office must be your principal workplace or you must regularly perform administrative or management tasks there. Whether you work at home or are an employee, you will need to satisfy these basic requirements to claim a home office deduction.
You Must Use Your Home Office Exclusively for Business
You can’t take the home office deduction unless you use part of your home exclusively for your business. In other words, you must use your home office only for your business. The more space you devote exclusively to your business, the more your home office deduction will be worth. If you use part of your home—such as a room or studio—as your business office, but you also use that space for personal purposes, you won’t qualify for the home office deduction.
Using a home office exclusively and regularly for business is not enough by itself to qualify for the home office deduction: You also must satisfy at least one of the following additional tests.
Home as Principal Place of Business
The most common way to satisfy the additional home office deduction requirement is to show that you use your home as your principal place of business. How you accomplish this depends on where you do most of your work and what type of work you do at home. If you do all or almost all of your work in your home office, your home is clearly your principal place of business and you’ll have no trouble qualifying for the home office deduction.
If you work in more than one location, your home office still qualifies as your principal place of business if you perform your most important business activities—those activities that most directly generate your income—at home. Most employees probably can't qualify on this basis.
If you perform equally important business activities in several locations, your principal place of business is where you spend more than half of your time. Thus, if you spend more than half of your time in an office provided by your employer, you won't qualify.
You Do Administrative Work at Home
You can also qualify for the home office deduction if (1) you use the office to conduct administrative or management activities for your employer, and (2) there is no other fixed location where you conduct substantial administrative or management activities.
Administrative or management activities include, but are not limited to:
- billing clients or patients
- keeping books and records
- ordering supplies
- setting up appointments, and
- writing reports.
If you use an office provided by your employer to do a substantial amount of such administrative work, you won't qualify for the home office deduction.
Using a Separate Structure
You can also deduct expenses for a separate freestanding structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your employee work. The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers.
Exclusive use means that you use the structure only for business—for example, you can’t use it to store gardening equipment or as a guesthouse. Regular use is not precisely defined, but it’s probably sufficient to use the structure ten or 15 hours a week.
For more on the home office deduction rules, see Nolo's article The Home Office Tax Deduction.