Today, lots of people work at home. One of the best tax deductions for home workers is the home office deduction. It allows you to deduct a portion of your rent or home mortgage expense, plus utilities, if you use a part of your home as a business office. However, your business must earn a profit to actually take the deduction (if you incur a loss, the deduction is carried forward to future years).
What constitutes a “home” for purposes of the home office deduction is broadly construed. It includes a regular house, apartment, condominium, or mobile home, or even a boat in which you live. But what about an RV (recreational vehicle)? Can you take a home office deduction for an office in an RV?
In a case that ended up in tax court, the court said no.
The case involved a couple who paid $283,494 for an RV back in 2002. This was a good-sized RV: It had a sleeping area, a bathroom, and a kitchenette with a countertop. Across the vehicle from the kitchen counter was a second countertop that the husband used as a desk, and on which he had a computer and office supplies.
The couple operated a consulting business together. They had a home in Illinois, but spent half of 2005 and all of 2006 travelling in their RV. They worked at their business while they travelled. They claimed a home office deduction of almost $6,000 for 2005 and over $9,000 for 2006. The IRS denied both deductions and the tax court agreed.
To qualify for a home office deduction, a business owner must use a portion of a dwelling unit regularly and exclusively for business purposes. The tax court found that this couple had failed to prove that there was an identifiable portion of their RV that was used exclusively for business purposes. The area they claimed constituted the home office was the countertop that the husband used as a desk. But the court said that it was simply not believable that “in the cramped quarters of a motor home, an unclosed area like the countertop would somehow be exclusively reserved to business activity.” (Dunford v. Comm’r, T.C. Memo 2013-189.)
This is not the first time that a taxpayer with a small living space has been denied a home office deduction. A psychologist who lived in San Francisco, claimed a home office deduction for one-quarter of her apartment. However, the entire apartment was a 400-square-foot studio, consisting of an open area (approximately 13 feet by 15 feet) furnished with a desk and a couch and a small dining area and kitchen (each approximately seven feet by eight feet). Given the layout of this tiny apartment, the court wouldn’t buy the taxpayer’s claim that she used 100 square feet exclusively for business. (Mullin v. Comm’r, TC Memo 2001-121.)