Exclusive use test for a home office.

Author:Williams, Marvin
Position:Debits & Credits - Column
 
FREE EXCERPT

It is well recognized that a taxpayer who uses a portion of his home on a regular and exclusive basis may deduct a portion of his home operating expenses as home office expenses. When one generally thinks of an office in a home for tax purposes, it is usually implied that the taxpayer is conducting only one trade or business out of his home. However, it is not always clear as to whether a taxpayer who operates more than one trade or business out of the same home office meets all of the requirements, especially the "exclusive use test," for deducting a portion of his home operating expenses as home office expenses.

Therefore, the purpose of this article, is to address this issue to determine if a taxpayer conducting more than one trade or business activity out of the same home office can satisfy the "exclusive use test" for an office in that home therefore, becoming eligible to deduct a portion of his home operating expenses as home office expenses.

Analysis

Section 280A of the Internal Revenue Code provides for a deduction for home office expenses for a taxpayer who uses a portion of their personal residence "exclusively" and on a regular basis: (a) [as] the principal place of business for any trade or business of the taxpayer, (b) as a place of business which is used by patients, clients or customers in meeting or dealing with the taxpayer in the normal course of his trade or business, or (c) in the case of a separate structure which is not attached to the dwelling unit, in connection with the taxpayer's trade or business. In the case of an employee, the preceding sentence shall apply only if the exclusive use referred to in the preceding sentence is for the convenience of his employer. (1) What is crucial here is the meaning of the condition of "exclusively." It is without dispute that the condition of exclusively prohibits any personal use, no matter how small or insignificant, by the taxpayer or anyone else of the designated area of the home that is being used as a home office. However, we must examine further to determine if it likewise prohibits the use of the home office to conduct more than one separate trade or business activity.

In the case of Alfred W. and Mary M. Hamacher (2), the taxpayer conducted two business activities out of a home office. One activity was related to the taxpayer's independent contracting acting services and the other activity was duties performed by the taxpayer in his capacity as an employed administrator...

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