Home Alone.

• Author: Blackburn, Michael D.
• Position: Brief Article

The Latest Laws on Home-Office Deductions

If you haven't already, it's time to think about your 2000 tax return. But if you're one of thousands of Americans who started a home-based business this year, it might be worthwhile to brush up on the recently changed and somewhat more liberal tax rules governing the home-office deduction. A little advance planning can help ensure that you qualify for the home-office deduction and that you maximize its tax value.

Prior to Jan. 1, 1999, the home-office deduction was not available to self-employed workers who did most of their work at their customers' locations. For example, musicians, plumbers, computer consultants, and house cleaners were not eligible for the deduction, even if they used a home office for administrative and management functions.

New Law

Under the new law, effective for those tax years beginning after Dec. 31, 1998, the home office will qualify as a principal place of business -- provided it is used exclusively and regularly to conduct business or management activities. The law applies even if you perform a substantial portion of work away from the home office. If you bill clients, schedule appointments, order supplies, write reports, and perform other administrative and management tasks at home, you can qualify for the deduction -- again, as long as there is no other fixed location where you conduct these activities.

Charmaine Gunnell, owner of West Jordan-based Dreamasters, a home-based video-production company that focuses on special interest videos, has set aside one room of her house for video production and part of another room for administrative work. "I think it is a good idea to have an accountant determine how much of a deduction to take," she says, because figuring out the square footage and depreciation values can be complicated, particularly since she only uses part of one room.

Regular and Exclusive Use

To be eligible for the home-office deduction, the portion of the home designated as office space must be used regularly and exclusively for business. Regularly means "often," rather than merely once or twice a month. And exclusively means exactly that, "exclusively," i.e., no children doing homework on the PC. The home office isn't necessarily an entire room or separate unit, but whatever space you designate must be restricted simply to business.

Keep Good Records

Planning is essential when claiming a home-office...