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Can I write off my home office?
Dear Dollar Diva,
I own a number of rental properties, which I manage from my home
office. The income and expenses are reported on Schedule E of my
Form 1040 tax return.
I wish to claim a home office, but Form 8829, Expenses
for Business Use of Your Home, only links to Schedule C. Can I claim
a home office using Schedule E, the recommended form for reporting
rental income? As far as I can determine, I meet the basic requirements
of a home office.
You do not meet the basic requirements for a home
office deduction even though it feels like you should, and the Diva
wishes you could. The Internal Revenue Service generally considers
a landlord to be involved in a "passive" investment activity rather
than an "active" earning activity even if the landlord actively
manages his properties.
The IRS expects you to pass tests to claim expenses
for the business use of your home.
| Home office deduction
tests |
| Used 100% for business purposes |
Your brother-in-law uses it
as a weekend crash pad |
| Used regularly for business
purposes |
It's only used occasionally
for emergencies |
| For your trade or business
-- being a landlord or manager of your investments doesn't count
as a trade or business; being an employee who works at home
in a virtual office counts |
The activity is not a trade
or business, or the home office is for the employee's convenience
rather than the employer's |
| Your principal place of business
-- for your business activity or the administration of your
business activity |
There's another place available
for you to do this work outside your home office |
As you can see, the bad news is you don't get to deduct
a home office. The good news is, because the IRS calls rental activity
passive and makes you report the income on Schedule E instead of
Schedule C, you don't have to pay self-employment tax on it. Self-employment
tax is 15.3 percent of the net income -- for successful landlords,
this isn't a bad trade-off.
For more information on home office deductions, read
the Internal Revenue Service Publication 587, Business Use of Your Home.
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-- Posted: Feb. 29, 2000
DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting,
from the Kellogg Graduate School at Northwestern University in Evanston,
Ill. Rosen has more than 15 years of experience in the financial arena, serving
in Illinois and Florida as a certified public accountant, financial consultant,
expert witness and educator. She is owner of Dorothy Rosen, CPA, a public
accounting firm that serves individuals and small businesses.
