How to Defend Your Home Office Deduction

Editor's note: This is the second of two stories on the home office deduction. Part one covered who's eligible for the tax break and what qualifies as a legitimate home office. Part two looks at the documentation you'll need if you do take the deduction and then face an audit, as well as the tax implications of taking the deduction if you eventually sell your home.

Some taxpayers balk at taking the home office deduction because they worry that it's seen as a red flag for IRS auditors.

Others fear the costs associated with the deduction when you sell a house. You're allowed to claim depreciation on your office space every year. As a result, when you sell, the IRS will collect taxes on a portion of the profit derived from the office space.

Making the right decision depends on several factors. ...