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How to Pass the 'Part-Time' Tax Test for a Home Office Deduction

To be eligible as an employee, you must also pass the following tests:

  • Using part of your home to conduct business must be for the convenience of your employer.
  • You cannot rent any portion of your home to your employer and use that rented space to carry out work duties for that employer.

Which expenses can be deducted

The IRS allows you to deduct only certain qualified expenses under the home office tax deduction. There are three general rules when it comes the expenses that qualify for this tax break:

  • 1. Home office only -- If an expense is related only to your home office, the entire cost is deductible as a "direct" home office expense.
  • 2. Whole house -- If an expense affects the entire house, a percentage of it will be deductible as an "indirect" home office expense.
  • 3. Non-business -- If an expense is associated solely with the non-business portion of your home, it is not deductible as a home office expense.

As with every tax deduction, there are restrictions on how much you are allowed to deduct for your home office expenses. In general, the more substantial your home business activities are, the greater your chances are for qualifying for the home office tax deduction. Keep in mind, however, the amount of your home office tax deduction cannot exceed your home-based business income.

For information regarding the home office tax deduction, including special rules and which tax worksheets, please refer to these resources:

IRS Publication 527 (Residential Rental Property)

IRS Publication 587 (Business Use of Your Home)

IRS Tax Form 8829 (Expenses for Business Use of Your Home)

IRS Tax Form 8829 Instructions

IRS Tax Form 1040, Schedule A

IRS Tax Form 1040, Schedule C

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