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2 Home Office/Small Busines Category 7, Topic 18 Message 1 Sun Apr 14, 1991 H.KONCZAK1 [HK] at 18:24 EDT How do you figure the depreciation on your house when, say, you use 20% for business. Does the depreciation go on schedule C... HK ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 2 Sun Apr 14, 1991 J.SLICKJR [Jack-CPA] at 21:23 EDT HK, You take your total basis in the house, allocate a reasonable portion to the land (an appraisal or a tax assessment is usually sufficient), then take the remainder times your 20% use to arrive at the portion of the house you will depreciate. You then depreciate that over 31.5 years straight-line. Be careful though, the home office deduction cannot be taken if your business doesn't show a profit and that includes the depreciation on your home. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 4 Sun Dec 01, 1991 CALC-RRH [Russ] at 23:48 EST What does anyone know about the "supposed new FORM 8829, CALCULATING HOME OFFICE DEDUCTIONS" that is coming out for this tax year? Not another one!!! Russ ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 6 Mon Dec 02, 1991 JSLICK [JACK] at 20:59 EST Russ, Yep another form for the self-employed to fill out. The 8829 will assist you indetermining the proper deduction for the use of your home. It only needs to be filled out by individuals claiming the home office deduction. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 7 Mon Dec 02, 1991 J.ATTARD [Janet(sysop)] at 21:01 EST Russ, the form is new enough that the people at the help desk at the IRS office here didn't know it existed as of last week. Neither did any of the auditors when asked. --Janet ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 8 Mon Dec 02, 1991 PEACHIE at 21:05 EST Russ: IRS wants to see what your calculations are regarding your home office. I have seen the form and I think it is 1 page. I have it here somewhere and can't put my hands on it. At Block, we always used a worksheet to do the deduction. IRS wants to see where our (TP) figures are coming from. If there is something specific you want to know let me know. I'll see if it's in Package X. Peachie. ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 9 Thu Dec 05, 1991 R.B.ANDREWS [Brad] at 03:23 EST As the article said, it should just summarize what you should have been doing anyway. Since I have lived in a townhouse for quite a while (actually two of them), and my office takes up most of the basement, I general figure its portion of the basement, and divide that by 1/3 for the part of the total house. Since I rent, it is very easy. I may deduct whenever I buy, but I won't depreciate so I don't have to worry about trouble when selling (taxes due on the profit on the "business" portion of the house). Kind of a way to cheat home "owners" out of a valid deduction, and discourage savings and encourage debt, stupid. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 10 Mon Jul 23, 1990 J.ATTARD [Janet(sysop)] (Forwarded) Phil or Larry, we had a question in another category about starting a business at home managing real estate rental properties.[A starting a business at home managing real estate rental properties. Does that kind of business (would it) qualify for a home office deduction (managing other people's rental properties); or would it fall under either passive income or some other tax laws and not qualify for either a home office deduction or even as a "business"? --Janet ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 11 Mon Jul 23, 1990 CAPT.NEMO [Rocky] (Forwarded) Hmmmmm CA law pretty strict about property mgt....think you need license and likely even a broker....which is good for property owner so he or she has some recourse if job bunged up. Someone did answer that it was a questionable home office business but tax dude or dudette best source of info on that. Rocky ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 14 Mon Jul 30, 1990 TAXES (Forwarded) Principal problem would be are potential tenants seen at office; do tenants come to office with complaints, etc. Why isn't rental office on premises? I would take tax deduction for office at home but understand that it could be dissallowed upon audit; but, since life itself is a big game, I would take the deduction subject to the previous proviso. If nothing else, if audited, you might get a partial deduction so what can you lose. Sorry I'm not more definite. The real truth is if you get audited, it depends if the auditor had a good day the day/night before, how soon does he/she want to go to lunch/dinner; go fishing/swimming, etc. In spite of what you may have been told, taxation is an art much more than a science when it comes down to reality. Hopefully you'll make so darn much money you won't even worry about the home office deduction because you'll have a fancy skyscraper next to the original rental property you are managing. ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 15 Sun Aug 05, 1990 V.LEE1 [Valorie] (Forwarded) To: TAXES The original question about a tax deduction for home office came from questions I had about managing residential properties -- for instance, when someone moves to another geographic location but wants to keep their house and rent it out -- so there would be no reason to have an office other than the home office. And no, no one would be visiting there. It would just be recordkeeping and receiving/making phone calls. I might also do some genealogy business at the same location -- research, putting together family histories, genealogies, etc. Would appreciate any advice -- thanks! ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 16 Sun Nov 18, 1990 T.SMITH99 [SANDRA] (Forwarded) Valorie, Have you checked to see if you will need a real estate license? In Ohio you will need a license to manage or sell anyone's real estate but your own. **Sandra** ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 17 Thu Dec 06, 1990 J.ATTARD [Janet(sysop)] (Forwarded) Jack, I got a question.. and a copy of an article from a newspaper in Texas that had a lot of inaccuracies in it. So I thought perhaps you could explain some of the basics, particularly on taking the home office deduction and how to depreciate your office as part of that deduction. There are library files on how to qualify for the Home Office deduction, but what we don't have there are specifics on depreciating the office.. Specifically what I'm pretty sure the article had wrong (or didn't really mention) was how to figure the value of the house (so you can calculate a figure to use for depreciation.) A lot of people assume they can just take the current value of the house or take the purchase price and use that to calculate the value of the office space, but from what I understand you have to use the LOWER of either the current value, or the purchase price minus the price of the land the house is on. Is this correct? Also, there's the issue of what happens when you sell the house. The article I was sent in email mentioned that you can't defer capital gains on the portion of the house you've depreciated for office space, but what it didn't mention is that you can avoid the capital gains by not using your home office in the year of sale (not taking the home office deduction in the year of sale. That used to be the way around the capital gains thing.. is it still? --Janet ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 18 Thu Dec 06, 1990 J.SLICKJR [JACK] (Forwarded) Janet: 1) Value of office space when house has depreciated in value To calculate the value of your home office(in tax language-your adjusted basis)first you need to determine whether your house has depreciated in value since you bought it or whether it has increased. If it has depreciated in value, then you use fair market value at the time you begin to use your home office. You take the fair market value of the house and subtract the fair market value of the land to arrive at a value for the house alone. Then you generally take the square footage of your office and divide that by the square footage of your house and multiply by the fair value of the house alone. The resulting amount is your depreciable basis and must be depreciated over 31.5 years straight-line. 2) Value of office space when house has appreciated in value When the house has appreciated in value, you take the purchase price of the house, add all improvements made to date, and subtract the land to arrive at your adjusted basis. You then go through the same computations as in 1) regarding square footage and depreciation method. 3) Problems when you sell your home after taking this deduction. When you sell your home and purchase a new home and are under the age of 55 the IRS allows you to defer the gain on the sale. (I'll get to those over 55 in a minute) The deferral of the gain does not apply to the portion of the house that you took the home office deduction on. You will have to compute the gain relating to this portion and it will be ordinary income not capital gain. It is possible for you to sell your home for a loss and still have gain from the home office portion. If you are over 55 the same rules apply regarding the ordinary income treatment of the gain relating to the home office, but the rest of the gain may be deferred or in the alternative you may use your once in a lifetime right to exclude up to $125,000 of the gain. 4) Other problems with home offices You are only allowed the home office deduction if you have income or breakeven, in other words the home office deduction cannot reduce your taxable income from your business below zero. Home office deductions are a notorius(sp) red flag when it comes to audits. Your home office must be a seperate area of your house in which you only carry on your business. Regular use of your home office space for other than your business disqualifies you from taking the home office deduction. The IRS is not lenient on this issue at all and other than incidental use will be challenged. The seperate area of your home does not have to be a room, it can be a portion of the room, but it is much more difficult to prove only business usage. That's just the basics folks, there are other issues that may need to be addressed. So if you have any particular questions regarding your situation, fire away. Also, this is an area of the tax law which is actively being challenged in the courts. So what I tell you today can and probably will change in some way in the future. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 19 Fri Dec 07, 1990 S.CONROY1 [Sonsie] (Forwarded) Wow, Jack! What a cogent, detailed explanation of a complicated topic. Thanks. It was great. As an aside, I've had a home office for probably 20 years now (and we have sold our principle residence twice in that time), and I've never had a single question about my return or an audit or anything. I know this is supposed to be a huge red flag (the home office deduction), but just wanted others to know it doesn't necessarily mean the IRS will swoop down on you the day you file. The last time we sold our home, I stopped taking the HOD about a year before we sold (I had temporarily taken a regular office because I also temporarily had a partner), and my tax preparer did not declare the small gain attributable to the office portion of the house because of this (at the time, that room was not actually in use as an office). I hope we will not be selling anytime soon, but is this strategy still useful or has the IRS changed its mind? Thanks for the assistance. ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 21 Mon Dec 10, 1990 J.SLICKJR [JACK] (Forwarded) Home office deduction (Part 2) If you are selling your home and planning on purchasing a new home there is a way to defer the gain you would normally recognize for the home office deduction. If order to defer the gain in the year of sale you must not claim the home office deduction in that year. The IRS has not been clear on how not to claim a home office deduction since if you establish an accounting method using the home office deduction they may force you to take the deduction in the year of sale. One means of making certain that the home office deduction is disallowed is to use the portion of your home that you normally take as an office deduction for personal purposes. The IRS rules that this immediately disallows the deduction for that year. When you purchase your new home to replace your old one, you want to be certain again to have the home office deduction disallowed in the year of purchase. The reason for this is that the IRS will allocate the cost of your new home between business use and personal use and only the personal portion of your new home qualifies for the computation of gain deferral. Now let's look at an example of how these rules apply. Joe sells his house in 1990 for 150,000, he purchased the house for 100,000, he used the house 25% for business and has claimed 5,000 of depreciation on the house. Joe has a gain of 55,000 (150,000- (100,000-5000)) all of which can be deferred if he does not claim the home office deduction in 1990. If he does claim the home office deduction, then Joe has to report the gain on the business portion of the home, which would be computed in this manner. 37,500 (150,000x25%) selling price of home office less 20,000 (25,000- 5,000) basis in home equals a gain of 17,500. It is easy to see that Joe would save a substantial amount of tax by not claiming the home office deduction in the year of sale. If Joe then purchased a new house for 160,000 in which the home office would constitute 25% of the home, Joe needs to seriously consider whether to claim the home office deduction. If he claims the home office deduction on his new home but not on his old he must first allocate the portion of his new home between business and personal use 160,000x75% personal use equals 120,000. Joe would then have 30,000 of gain which would be recognized on his 1990 return. If he doesn't claim the home office deduction then no gain would be recognized. If Joe had purchased a home in which his personal use at least equaled the selling price of his new home then he could claim the home office deduction without additional taxable consequences. In this example that would be a home costing at least 200,000. What this points out is that in the year of sale of your home or purchase of a new home in which you plan to take home office deductions you MUST consider carefully all aspects of taking the home office deduction. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 23 Tue Dec 18, 1990 B.SOLOMON3 [Brad Solomon] (Forwarded) Jack, You did cover most of the facts. However, there is a minor additional point. When you sell a house that has a portion used for business in the year of sale, not only do you have to pay the taxes on the business portion of that sale, but you have depreciation recapture, which is immediately taxable, as ordinary income (I know, little current difference between capital gains and ordinary income, but there is some). Also, that recapture is fully taxable even if there was an installment sale. I'm not positive on this, but it would seem that if you stopped the business usage before the year of sale and are therefor not reporting a sale of business asset (form 4797), there would be no recapture. Sure, the depreciation adds to the gain (which may be deferred), but there would probably be no ordinary income recapture. Brad Solomon (email ID BRAD as of tomorrow) ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 24 Tue Dec 18, 1990 J.SLICKJR [JACK] (Forwarded) Brad, Your right that it would be depreciation recapture which is ordinary gain. I didn't open that topic since there is little difference in the tax treatment of the two items anymore, unless as you stated an installment sale was involved. The IRS has stated in a revenue ruling that if you do not claim the Home Office deduction in the year of sale that the entire gain can be deferred. I don't remember the actual cite but I know it was issued sometime in 1982. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 25 Sat Jan 12, 1991 A.THORPE [Al] (Forwarded) Jack, there was considerable discussion about this on the Prodigy board and you are correct that they ruled that if a year elapses wherein there is no home office deduction, the accumulated depreciation merely reduces the basis in the house; IRC 1034 comes to the rescue and defers the entire gain that IRC 121 (if applicable) doesn't. I would like to know what the deal is regarding depreciation during the nearly two year period from the purchase of the new house and the sale of the temporarily rented out forme former principal residence. Brad would have a thing or two to say about it Please forgive my lack of expertise on this new board. This is my first effort to participate. Brad will tell you, I have no credentials. Al Thorpe ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 27 Tue Sep 15, 1992 RICK.SINK [Rick/Donna] at 21:57 EDT My wife and I want to start a BBS out of our home and try to build it into a business. We have a rather damp, unfinished basement that my wife wants to designate as our new office. She also wants to fix the dampness problem and finish off the basement so that it can properly serve as an office. We don't have estimates yet but we are probably looking at $8000-$10,000 to do this. Naturally, we would claim a deduction for a home office after doing this. But the big question I have is whether we can deduct the renovation expenses that we will incur just to construct a suitable office area. And if so, what depreciation period would we be looking at? Would appreciate any input on these questions. Rick Sink ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 28 Wed Sep 16, 1992 M.ARROTTJR. [Bill] at 04:46 EDT Rick, >>>>> Home office depreciation One method which might work would be to charge your business rent and file rental income on your personal return. A tax professional would know for sure. Bill ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 29 Wed Sep 16, 1992 JSLICK [JACK] at 22:31 EDT Rick, You would depreciate the cost of the renovations over 31.5 years. You could also pick up a portion of the original purchase price of the house, and depreciate that. You can't rent the space to yourself unless there is another entity involved such as a partnership or corporation. Let me know if you need more information. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 30 Wed Sep 16, 1992 RICK.SINK [Rick/Donna] at 22:47 EDT To: M.ARROTTJR. [Bill] >>>>> Home office depreciation > One method which might work would be to charge your business >rent and file rental income on your personal return. A tax >professional would know for sure. Hmm...not sure what you are driving at. Do you mean treat part of my house as a rental unit, and depreciate that portion as rental property? Seems circuitous. Not that I'm against being circuitous if it creates a legitimate deduction! Please elaborate if I have not grasped your intended point. Rick ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 31 Fri Sep 18, 1992 JSLICK [JACK] at 21:37 EDT Rick, That was the point of my post. You can't charge yourself rent if you own the property unless there is another entity involved such as a corporation or partnership you own or are a partner in. Bill's point about charging yourself rent is moot if you are talking individual taxes and a schedule C. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 34 Tue Jan 12, 1993 JPEABODY [JimP] at 15:40 EST The Supreme Court ruled today that if the majority of time is spent elsewhere, other than the home, no dedustion will be allowed. How does this ruling affect a HOSB? -Jim ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 35 Tue Jan 12, 1993 JSLICK [JACK] at 22:34 EST Jim, I heard there will be a lot of waiing and gnashing of teeth on this one. I haven't had a chance to see the papers to determine what actually happened in the court case, so I'll defer my opinion until tomorrow. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 36 Wed Jan 13, 1993 BRAD [Brad Solomon] at 05:12 EST It's been said that perhaps the Supreme Court went beyond the intent of Congress. Perhaps Congress will pass more legislation better defining just what their intent was (or is). Unfortunately, with the attention to the budget crisis, I don't honestly believe that they'll do that. But at first glance, it certainly looks like they've virtually shut down home office deductions. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 37 Wed Jan 13, 1993 J.ATTARD [Janet(sysop)] at 13:19 EST I don't think the ruling cuts off home office deductions though for people who perform all of their work in their home office. Writers and any professional who don't leave their home office to meet with clients should still be able to declare the home office deduction, it would seem. The wording of the decision I read stated that the principle place of business test would hinge on "relative importance" of the home office. If all work is produced in the home office, I can't see the deduction being denied. What I do see happening though, is that under this ruling plumbers, electricians, consultants, lecturers, and others who go out to clients locations to perform their services are going to lose out on the home office deduction. --Janet ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 38 Wed Jan 13, 1993 J.ATTARD [Janet(sysop)] at 16:45 EST For anyone who hasn't seen reports about the Supreme Court ruling, it essentially said that although a home office used for administrative purposes may be necessary, it is not necessarily deductible. To be deductible the relative importance of the activities done at the home office compared to activities performed at other sites, and the comparative amounts of time spent at each location. According to the decision, what must be weighed in determining the relative importance is where the taxpayer meets with clients or patients and where products or services are actually delivered. ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 39 Wed Jan 13, 1993 K.BARBER2 [Brenda] at 22:11 EST I don't suppose this ruling will pre-empt or change the rule about "exclusivity" will it? I've been afraid to deduct my home office (even though I do ALL of my work in it) because there's an (unused) sleeper sofa in the room. I was told the IRS would disallow the deduction like a shot just because of that **** sofa (which will not fit ANYWHERE else in this house!). ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 40 Wed Jan 13, 1993 JSLICK [JACK] at 22:17 EST Actually plumbers, electricians, etc shouldn't have a problem. Since they go to multiple locations, usually no one repeatedly and don't work on other clients while at that site. It appears to me then that the focal point of their business would be there home office. That's where they answered the phone an ddid the billing, and is where the initial client contact occurred. The people getting hurt here are those that meet and deal with clients at a location other than their home office and only use the office to complete paperwork. The difference between an electrician or plumber let's say, who you call at their home office and request their assistance, and a professional like a anesthesiologist who you meet at another location and deal with them only there. It's sort of a fine line, but one that can be maintained. Now if the electrician was going to a location and repairing toasters for example at that location, then the next day going to another location and repairing toasters, and so on throughout the week on a continuous rotation I do believe the electrician has a problem. These rules only can affect you a) if the office is in your home and not a separate unattached structure, b) you don't meet with clients at this location, and c) there are other locations where you do meet with customers regularly. If you rent an office, that is per se deductible and none of this affects you, unless you also happen to live in the office you rent.:> Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 41 Wed Jan 13, 1993 JSLICK [JACK] at 22:29 EST Brenda, No the exclusivity of use still applies, but as long as the couch is never used for purposes other than clients sitting on it, go ahead and take the deduction. They can't throw it out for your choice of furniture. Now if the couch ever get's used as a bed the deduction is history.:> Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 42 Thu Jan 14, 1993 R.HUGGINS [Hug] at 00:35 EST I feel the court made a bummer of a decision on this one. Why couldn't they apply a reverse-logic test to the question: if you did not have an office for your records, etc. and to do your billing out of, return phone calls, and so forth, could you realistically still perform your job? Seems to me that if the answer is "No," then the court has missed the whole point. The very LEAST they could do is say that if you are only in your office for 25% of yor work week, you can (at least) deduct a same amount of the space as a home office. And what about a total hours test. If the doctor is spending 30 hours in surgery and 30 hours in the office per week, it's a 50% use at least. Only if you mandate a 40 hours-and-no-more limitation (and who of us micro-businessmen can do that?), could you come up with the court's sense of reasoning. I can only hope that they knew this would force the Congress to write a better definition. let's hope they do. This does not affect me, because I definitely do 95% of my work right here, but I hate to see it for the sake of others. --Hug ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 43 Thu Jan 14, 1993 BRAD [Brad Solomon] at 01:22 EST Er, if the sofa is used as a bed, the deduction is PROBABLY history. It depends on the nature of the business. She could be a doctor or nurse, f'r'instance. Yeah, that's what I meant. Seriously, though, it does look like it will eliminate the majority of existing deductions. Virtually all employees would be eliminated, as would most people who don't work primarily from their home offices. Separate structures don't really count, since they are not home offices. Do you think the IRS has planned this? When they created that special form for home office expenses, this easily highlights the people who are taking the deduction. Now they can go after all of them. Hmmm, should help Clinton close the deficit. I think the only way for this to come back is for a massive public outcry. So far, I haven't seen much in business papers or business pages. Hopefully, it will get serious play in the media. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 47 Fri Jan 15, 1993 B.BIONDO [Brad] at 21:27 EST Would anyone care to offer an opinion on my situation? Of course, I realize it's only an opinion. I am a self-employed computer consultant, and the majority of my time and (income) is at the client site. However, I am also a shareware vendor, at which I spend 100% of my time at the PC in my home office. I've had a couple of theories, but thought I'd wait to see what you all had to say so as not to skew anyone's opinion. Thanks! -Brad- GEnieLamp IBM Staff Writer (that too <g>) ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 48 Sat Jan 16, 1993 A.MCONEL [AMARIS] at 00:24 EST Yes, it's nearing that time of year again, isn't it? And, for the second year, I have worked out of my home. Technically, I have a word processing business, but I took an "outside" job 18 months ago (July, 1991) to work on a project funded by a Federal grant. Almost immediately I was forced to work at home because the bathrooms in the building where our office is located were not wheelchair accessible. I've been socking away a good portion of my salary from this employment to seed my WP business when the grant ends in October, 1993. My question is, how is it determined that I work at home so that I can take the appropriate deductions? Last year my accountant didn't subtract any deductions for the business use of my home...I'm not sure why. It might be that I was still eligible for Medicaid because of a disability. However, after a year of not using those benefits, I told them to cancel my eligibility, so I am completely on my own at this time. ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 49 Sat Jan 16, 1993 BRAD [Brad Solomon] at 02:18 EST David A., True, it should have little effect on those who work full time from their home offices, but the many people who do support functions from a home office while doing work outside will quite likely lose the deduction. Not to mention virtually all employees who do regular (but not all) work at home. -=-=-=-=-=-=-=-=-=-=-=-=-=- Brad [you stole my name <G>], Do you file as two separate businesses (two Schedule C's, or perhaps one or more of them corporations)? If it is one Schedule C, then it can get you into a grey area. How much of your time is spent working out of the home office? How does the income split up? Etc. It is too new to have any new regulations drawn up, assuming that they ever will. -=-=-=-=-=-=-=-=-=-=-=-=-=- Amaris, You should have asked your accountant why the deduction wasn't taken last year. I can think of several reasons: 1) Maybe you didn't give enough information. 2) Employee business expenses are only deductable to the extent that they exceed 2% of your adjusted gross income. Maybe your expenses didn't exceed that. 3) Depreciation will add to the taxable profit when the house is sold. If your deduction is far from the 2%, but would go slightly above it with depreciation, you could end up with a situation where a deduction would save you a few dollars (very few), yet would cost you hundreds or thousands of dollars later. 4) The home office deduction raises a flag with the IRS. If there was little to gain, it might not be worth the risk, expense and/or hassle for a small benefit. 5) Maybe you didn't use the area exclusively for business. Even then, it was not enough for you to work at home, you needed a dedicated area for the work. These are only guesses, since I don't know the facts. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 50 Sat Jan 16, 1993 L.DEVRIES [Lloyd] at 03:42 EST >>> BRAD [Brad Solomon] > So far, I haven't seen much in business papers or business pages. > Hopefully, it will get serious play in the media. The media have been preoccupied with the Gulf this week. Even the SCOTUS decision on abortion blockades got barely a mention, and abortion is usually a hot topic. At least in the mainstream daily and broadcast press, Brad, if it didn't get play this past week, it's History. OTOH, not all of Congress can work on the deficit at once. The key here is to write your congressional representatives, and tell them you want action on the home office rules. (Writing is better than calling.) <<<Lloyd>>> ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 53 Sat Jan 16, 1993 HAL.DAY [DayCo] at 11:35 EST If a portion of the office is in use 24 hours a day (BBS), then how would it be treated, I wonder? Hal "At the foot of Pike's Peak" ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 54 Sat Jan 16, 1993 S.ANDREWS6 [David A.] at 11:58 EST If the BBS is part of the business, then no problem. If the BBS is not for business, and the office is not a home office, no problem. If the BBS is not for business, and the office is a home office, than that part of the home office would not be deductable. The law says that any area (part of a room, etc.) used solely for business is deductable. What's the problem? .........right? ...........David A. .............no problem ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 55 Sat Jan 16, 1993 A.MCONEL [AMARIS] at 12:49 EST Brad (Solomon)...Now that I think about it, I think #4 hit the nail on the head - the gain was not worth the flag to the IRS. I got quite a generous refund. I'm not so sure this will be the case for 1992 however. Guess it's time for me to ask more questions. Thank you for your thoughts on the subject. There are probably a number of articles being published around the country on the new home office deduction rule. This morning's Register Guard in Eugene, Oregon published one by the Associated Press out of New York stating that the ruling was based on the case of an anesthesiologist in McLean, Virginia, who kept an office in a spare bedroom but spent most of his workweek practising in two hospitals. The article goes on to say that simply doing your mundane filing and billing chores at home is not enough, and specifically mentions that carpenters and house painters would fall into that catagory. It looks like the determination rests on the answer to the question of "significant value to what you do" and the article says that free- lance writers probably don't have anything to worry about. IRS Publication 587, called "Business Use of Your Home" is recommended for more information. Point of interest: According to the IRS, 30.4 million Americans worked from their homes in 1992; 1.6 million filed for a home office deduction in 1991. ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 56 Sat Jan 16, 1993 J.ATTARD [Janet(sysop)] at 16:19 EST You can find a copy of the IRS publication Business Use of the HOme in the HOSB library. (Search for IRS and you'll pick it up quickly). Amaris: another possible reason perhaps that you accountant didn't suggest the deduction is that you are an employee of the company, (I think that's what you said you were?) and maybe he or she felt that their failure to provide wheelchair accommodations would not make your home office qualify to meet the "at the convenience of the employer" test on employee home office deductions. Regarding whether the home office deduction is a loophole: Perhaps to those who don't have legitimate home offices and who do not use their offices exclusively for business it is a loophole, but to anyone who makes a substantial part or all of their income from self-employment, the need to maintain office facilities in some location can't be denied. Yet the way the law was written - and now interpretted by the Supreme Court, the right to take a business deduction for the space used for those office facilities will be denied to some people. While some may be able to maintain their records in a little file box and/or manilla envelope, if they chose to rent office quarters to store that file box and manilla envelope, they would be able to deduct the cost of the space. space even if they maintained offices in other locations and/or delivered their products or services elsewhere. Small business keeps the wheels of the US economy turning. And home offices - those used by the self-employed -- are small businesses. I believe the law should be rewritten so the self-employed can deduct any space they use in the regular course of their business without regard to location. Whether one uses an office in their home or rents space out of the home, if the office is neccessary, the law ought to allow deductions for expenses of running it. --Janet PS: to whoever mentioned "just deducting mortgage interest" to avoid the home office deduction, your plan won't work. To deduct mortgage interest for a home office, you must complete for 8829 - the home office deduction form. ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 57 Sat Jan 16, 1993 B.BIONDO [Brad] at 20:46 EST Brad [wait...how old are you...maybe YOU stole MY name <G>] Both businesses are conducted under one name and on one Schedule C. I spend 40 hours a week at the client site, and I don't know how many hours in the office with the shareware stuff. The income split up is currently about 98-2. Doesn't look too promising, does it? <g> -Brad B- Gee, do I have to change my NAM? ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 58 Sat Jan 16, 1993 K.BARBER2 [Brenda] at 22:02 EST An addendum to Janet's post about home office deductions being a "loophole"-- small businesses, and particularly self-employed types, are already socked HARD by the IRS for social security taxes. And the smaller you are, the harder, proportionately, you get socked (since there's a ceiling of sorts on the amount you pay). As a writer, I do 100% of my work in my home office. In fact, we rented a 4 bedroom house instead of a 3 bedroom just so I could have an office. I have all of my computer equipment here, my research books, my files, old drafts of manuscripts, etc. Yet I'm afraid to take the home office deduction because of all of the obstacles the IRS has put in my way (even before this ruling, which doesn't affect me). I have a sleeper sofa in this office (which is never used for anything but an office) and have been told by dozens of people that that alone is enough for the IRS to disallow the deduction. I think it stinks that small businesses are held to so much more rigorous a standard in their home offices than big businesses are for THEIR office space. I mean, how many corporate offices have couches, and even allow employees to sleep on them if they're working late? How many employees do personal business while at work? Any number of things go on at corporate offices that would disallow a home office deduction. I guess I just feel picked on sometimes. <g> Soapbox mode off! --Brenda :) ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 60 Sat Jan 16, 1993 JSLICK [JACK] at 23:02 EST Brad Biondo, Since your one business is entirely at home, I'd use that to justify the home office deduction. Of course that means that the business needs to show a profit, but that's the safest way to take the deduction. ____ Amaris, You would qualify under the "convenience of the employer" portion of the rules to take the home office deductions. Keep in mind though that the deducit0on in your case is going to be subject to the 2% of AGI threshhold for miscellaneous deductions. You should get a statement from your employer that states that your office maintained in the home is for the convenience of the employer and the reasons this is so. ____ David A. The mortgage deduction is automatically available even if you weren't in business, therefore this really isn't an optional way to get the home office deduction. ____ Hal, The home office in your case depends on whether the office is used for other than business purposes at any time. If it is only used for business purposes then it would qualify for the deduction. The recent decision would not affect you since the physincal location and where you "meet your customers" is your home office. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 61 Sat Jan 16, 1993 JSLICK [JACK] at 23:12 EST Brad Biondo, Based on the income thing your are right it doesn't look too promising, although if the shareware stuff is generating adequate income it may be possible. You will have to break the two out on separate schedule C's though. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 63 Sun Jan 17, 1993 A.MCONEL [AMARIS] at 02:37 EST Well, Janet, 1991 is a moot point now, of course, but I still find it a perplexing issue as to at whose convenience my working at home was/is. Personally, and privately, I was not at all disappointed. I prefer working at home. Office atmospheres and politics make me crazy. Fast! But, wouldn't it have been inconvenient for my employer if every time I had to use the bathroom I had to take a 45 minute break to go home? Isn't there some law that requires employers to provide their workers an appropriate place to relieve themselves? Purely for the sake of argument, when my employer (an Independent Living Center - non-profit organization set up to offer services to people with disabilities) rented that space, they only checked to be sure that the bathrooms were on the same floor. They paid little attention to its interior accessibility to people who use wheelchairs. And, the bathrooms were not part of the office space they rented, but located in a common hall for the use of employees of several offices plus their customers/clients. Title II of the ADA (Americans with Disabilities Act) regarding public accomodations came into effect shortly after I was hired, and my employer began negotiating immediately with the owner of the building. After several months of being virtually ignored, my employer brought in an attorney. This resulted in a Federal complaint and that's where the issue stands now. It won't be resolved until after my grant expires and I am no longer working there. So, at whose convenience (from the IRS's point of view) am I working, seeing clients, having meetings, receiving telephone calls, etc...at my home? AMARIS.....(((((*) ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 64 Sun Jan 17, 1993 BRAD [Brad Solomon] at 07:44 EST David A., You don't need the home office deduction to take the mortgage interest deduction. If you lose the home office deduction, then you can still take that. PLUS, whenever depreciation is allowed, the IRS can treat it as if you took the deduction, whether or not you actually took it - they adjust the basis (reduce your cost basis) by depreciation allowable or allowed. I don't know if they do this for home offices - I doubt it, but they can. -=-=-=-=-=-=-=-=-=-=-=-=-=- Brad B, If you only use the home office exclusively for something that is 2% of your business, then I agree that it would not look good for you. However, expanding on what Jack said, maybe you should go to 2 Schedule C's. IF the shareware venture is profitable, and that is all that the home office is used for, then you might be ok. Hmmm, I see that Jack said that, in a later post. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 65 Sun Jan 17, 1993 J.ATTARD [Janet(sysop)] at 13:11 EST Jack or Brad, could you qualify what you were saying about the home mortgage interest deduction? As a business expense, it has to go on the home office deduction form, doesn't it? Do you mean that people can just deduct their mortgage interest on 1040A (all of it) if they aren't taking a portion of it on the form 8829? --Janet ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 66 Sun Jan 17, 1993 JSLICK [JACK] at 19:39 EST Amaris, Well the convenience of the employer could mean a lot of things. In most instances it means that the employee must be available around the clock to answer questions or fix problems. It's possible that the situatio you've outlined might qualify although in my opinion it would contain some risk. It's not really convenience but more like avoiding a responsibility. Anyway with the employer provided documentation it would be worth trying for. Jack _____ Janet, If you don't claim the home office deduction the mortgage interest never ends up on the 8829. If however you do claim it, then the mortgage interest must show up there. If there are limitation on the form 8829, the mortgage interest etc aren't limited. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 68 Mon Jan 18, 1993 L.DEVRIES [Lloyd] at 05:21 EST >>> K.BARBER2 [Brenda] > I have a sleeper sofa in this office (which is never used for anything > but an office) and have been told by dozens of people that that alone is > enough for the IRS to disallow the deduction. Brenda, a question: Can the sleeper sofa be opened up? If the furniture is arranged in such a way that it can't be used as a sleeper, if there isn't room to open it up, wouldn't that help show that that room is solely an office? I don't know the answer, and I'm no tax expert; I'm just throwing this out as a possibility. I think I said this before: Contact your congresscritter. <<<Lloyd>>> ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 69 Mon Jan 18, 1993 K.BARBER2 [Brenda] at 22:51 EST Thanks, Lloyd. Well, as the office is normally set up the sofa can't be opened, but I suppose in a pinch the furniture could be pushed around some... Thing is, won't it boil down to whether they believe me or not? I mean, if someone DID sleep on the sofa (and I must admit I think it's pretty chicken that even that would disallow the office) how would they know? And how could I prove no one did? <shrug> To me it sounds like one of those unenforceable rules unless they make blanket sweeping judgments outlawing all sleeper sofas. (Which is what a few people have told me they've done.) Certainly, by no stretch of the imagination does this look like a guest bedroom! The closet is all shelves--no place to hang anything. No drawers, not even a place to open a suitcase! (Pity anyone who DID want to sleep here!) I may screw my nerve up and deduct it after all and see what happens... ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 71 Tue Jan 19, 1993 P.PRINCE1 [Nancy] at 00:42 EST Brenda, I have prepared taxes professionally for 15 years and have always encouraged my clients to assume an aggressive stance when they have a deduction that fits the IRS criteria for that deduction, albiet a gray or interpertational area. If you were a client sitting at my desk, I would suggest you take the home office deduction regardless of the sofa bed. The tax laws are based on the intent and usage of the asset or, in your case, area. If the sofa bed isn't used as such, it merely isn't an issue. Also, consider this. If you have a legal deduction you don't take, you lose 100% of the benefit. The odds are less that 1% that your return will ever be questioned, and if it is, based on your post as to how you use the area, your deduction should certainly be allowed. The odds are totally in your favor. Of course, you have to be of the mindset to take the deduction. Nancy ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 72 Tue Jan 19, 1993 A.MCONEL [AMARIS] at 02:13 EST Joni...I think the "gamble" you were talking about was the one I always feel when I turn to any kind of "professional" for help or advice. What I said was kind of obvious, that you never know until you're further down the road whether you've chosen an angel or a devil. Anyway, I did take the plunge and consult with someone. I think it was here that I left a post describing this first meeting. He seems like "one of us," with loads of empathy and comensurately low fees for mini-home-biz folks. He has a name for me at Gateway, but not for someone he has had personal contact with, rather, a friend who did. I would love to talk with the same person you talked with. That feels more direct. BTW, no matter how many consultants I have, I still intend to run my purchase choice by you folks here for comment before writing the check. Thanks Janet, that was a sweet thing to say. ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 74 Tue Jan 19, 1993 JSLICK [JACK] at 21:49 EST Brenda, For what its worth, if it gets to court the judges in these types of cases weigh the sincereity of the defendants and in most cases unless it is obvious that the defendant is lying tend to err on the side of the defendant. So in my book you should take the deduction if you otherwise qualify for it, and you could amend the past three years to claim it (again as long as you qualified). It might get you some of that tax back. As far as percentage of audited returns go, it's actually a lottle higher than 1% but not much the statistics for 1991 audits on 1990 returns were as follows for self-employed schedule C filers, below 25K 1.45%, between 25K and 50K 1.85%, above 50K 3.63%. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 75 Wed Jan 20, 1993 R.SCHENOT [Bob] at 08:03 EST Just to ask the question...... When I figured out what the deduction actually did for me in current taxes, vs. complicating my taxes and life, I gave up the deduction some years ago. I think that being a homeowner (that bought in 1980) and using a relatively small proportion of my square footage for business purposes had a lot to do with it ---- but I wonder what all the fuss is about..... (My major household expenses; mortgage interest & taxes are already deductable). How much money are we really talking about for the average home office? (Ducking & running......) -BobSchenot ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 77 Wed Jan 20, 1993 J.ATTARD [Janet(sysop)] at 11:25 EST Bob, the actual depreciation for space used isn't all that much, but the related expense - depending where you live - can be a decent sized deduction. You can deduct a prorated portion of utilities (light, heat, etc) if you take the home office deduction. ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 80 Thu Jan 21, 1993 T.ROBERTS3 [Tony] at 19:15 EST Bob, After doing the calculations both ways, I found I would save $9.00 if I took the home office deduction. I decided not to worry about it especially since taking the deduction has ramifications when you later sell your home. Tony ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 81 Fri Jan 22, 1993 J.ATTARD [Janet(sysop)] at 00:00 EST Tony, No, for a $9 savings I couldn't see the hassle. But people who live in areas where they pay high real estate taxes, utiliities, or have big mortgages - can save a significant amount by taking the home office deduction - if their office qualifies and if they are willing to accept the higher risk of audit. For instance, if your utility bills are $3,000 a year (not unreasonable on Long Island, unfortunately); real estate taxes are $4,000; mortgage interest is $5.000 and you use 10% of the house for business you have a $1200 deduction - without depreciating the house. (10% of $12000) Federal tax, state tax and self-employment taxes you could save on that deduction could easily amount to close to $500. Selling the house doesn't have to present a hassle either... But I'll let the accountants explain that one <g> --Janet ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 83 Fri Jan 22, 1993 BRAD [Brad Solomon] at 04:11 EST Janet, Of the list you gave, the utility bills are an item that would not have been deductable without the home office. The RE taxes and mortgage interest (in MOST cases) would already be deductable. As far as depreciation, well, at best, when you sell the house your capital gain is increased by the amount of the depreciation. Plus, if it was your office when you sell the house, you cannot defer the gain on that portion of the house like you can in general with your primary residence (buying another residence). There are other rules, but I won't go into them now. You do have a good point, though. By moving some deductable items to schedule C, it lowers your self employment tax. OTOH, it also lowers your social security earnings, thus lowering your ultimate social security benefit. That's if you believe that you'll be collecting it. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 86 Sat Jan 23, 1993 D.BARBER9 [sparkle] at 19:16 EST I would like to take the home office deduction. I operate my business full time from the home office and I meet all the other requirements, BUT what do you do if you are not a sole proprietor? My business is a partnership! I hope I can take this deduction, it's worth over $500. Thanks, Doris ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 87 Sun Jan 24, 1993 JSLICK [JACK] at 00:02 EST Doris, Unfortunately I don't have good news with respect to your taking the home office deduction. In order to do so you will have to take the deduction on schedule A and as such it won't reduce your self- employment taxable income at all. On top of that you will be subject to the 2% of AGI threshhold for miscellaneous itemized deductions. In short the deduction may be worthless to you after those two steps. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 88 Sun Jan 24, 1993 S.ANDREWS6 [David A.] at 08:50 EST Jack, why is that? Can not the partnership designate one home office? It really makes a difference if it comes off of 'C' instead of 'A'. ............David A. ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 90 Sun Jan 24, 1993 D.BARBER9 [sparkle] at 12:14 EST Even if the partnership is between husband and wife? ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 91 Sun Jan 24, 1993 D.BARBER9 [sparkle] at 12:21 EST In the tax guide for business use of home it says "The rules in this publication apply to individuals, trusts, estates, partnerships, and S corporations... There are no special rules for business use of a home by a partner or S corporation shareholder." What does that mean? ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 92 Sun Jan 24, 1993 JSLICK [JACK] at 22:03 EST David, In no case would the deduction show up on schedule C if it applied to the partnership, see my retraction later to Doris about the deductibility of the home office for partnerships. :> ___ Doris, It appears I spoke too soon, and didn't look at it in enough detail. Various revenue rulings have applied the deduction to partnerships. There is nothing in the code or rulings to show how to handle the deduction however. The code does state that where the trade or business is a schedule F that the deduction be computed and the various expenses reported on the corresponding lines of the schedule. In the case where the partnership is your trade or business (note real estate rentals, limited partnerships, investment clubs are not trades or businesses) then you would compute the deduction as specified in the code and limiting it to income from the trade or business, you would deduct this amount from the income you report on Schedule E (my recomendation is to show the amount reported on the K-1 on Schedule E and the home office deduction as a separate deduction immediately following it), You would reduce the self-employment income by the home deduction too. Again there isn't anything tangible to say this is how you report it but the logic should be similar to the way the IRS tells you to report a home office when using a schedule other than C. I apologize for leading yo astray in my earlier post. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 93 Mon Jan 25, 1993 D.BARBER9 [sparkle] at 18:14 EST Jack, The IRS told me I cannot take the deduction on Schedule E. They said I must claim it like you said the first time..a misc. deduction. Or I can as an individual rent space to the partnership and take a rent deduction. Of course I would have to claim the rental income! I called them several times and I got different answers just about every time. It is such a gray area. ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 94 Mon Jan 25, 1993 JSLICK [JACK] at 22:36 EST Doris, I thought about the rent thing too, but I figured that wouldn't be allowed since it is specifically denied between corporations and taxpayers to prevent people from trying to circumvent the home office rules. Anyway if the rent were done you wouldn't have any additional income, but you could shelter some of the income you have from self employment taxes. The rent is a deduction for the partnership and directly reduces self-employment income. The rental income is not taxable as self employment income on your personal return. The deduction and the income exactly offset so no income or expense is really recognized. Obviously not taking the deduction at all is the most conservative approach but also costs you more in taxes, the rent thing is semi risky because of the denials for corporations, schedule A would be the least risky of the options taking the deduction but that does not reduce self-employment tax, performing the deduction on schedule E is probably in the same ballpark as the rental approach as far as risk goes, and seems to be logically supported given the method the publication states to be used when reporting on schedule F. It is a big gray area, and good luck with what ever method you use. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 95 Wed Jan 27, 1993 DIRECTORY.JL [Midas*Touch!] at 15:24 EST Jack... Could you elaborate on the rental denials for corporations? Does this include regular, or "C" corps. Can an officer of a "C" corp rent office space and/or equipment to the corporation w/o running afoul of the tax code? Or were you specifically addressing "S" corps, partnerships, etc... ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 96 Wed Jan 27, 1993 JSLICK [JACK] at 21:32 EST John, It is perfectly OK to rent office space and buildings to a C- corp the denial I'm speaking of is a denial of renting out an office in the home to the C-corp. As long as the office space etc, is a separate building from your home you shouldn't have a problem. Renting your garage to the company for storage spaceis OK too. But the home office is specifically denied by the code. The reason for this is that many people who would not qualify otherwise for the home office deduction were having their corporation rent the office which would automatically allow them to deduct the related expenses. They decided to slam the door on that loophole, and in the meantime probably prevented some legitimate deductions from being taken. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 97 Thu Jan 28, 1993 S.CONROY1 [Sonsie] at 23:14 EST Just to pose a hyppthetical case here... If, as Jack suggests, only a little more than 1% of all returns are audited, and you have this dad-blasted sleeper sofa in your otherwise totally- for-business office, what are the chances that a Nosy Parker from the IRS is actually going to conduct a field audit to disallow a home office deduction, based soley on that sofa? If you otherwise have nothing to hide, your return is honest, and you are a patriotic American <G>, why NOT take the deduction? The worst that could happen would be that the deduction would be disallowed. I can't imagine even the IRS throwing you in jail, handing you a giant fine, or otherwise harrassing you for an honest disagreement. Fraud, YES. But taking what you believe to be a realistic deduction, NO. =Sonsie= ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 98 Fri Jan 29, 1993 BRAD [Brad Solomon] at 05:21 EST First, I'd speculate that the home office deduction will be an automatic flag, perhaps automatically having a person look it over. Not an automatic audit, but certainly a higher profile. Second, if you take a position that you expect to be challenged, you are supposed to identify this, rather than hoping that IRS misses it. In effect, you are supposed to say, "I think you will disallow this - please look it over." Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 100 Fri Jan 29, 1993 JSLICK [JACK] at 21:58 EST Brenda, If you take a questionable deduction in your return you are supposed to highlight this to the IRS, Sort of like pointing out I cheated right here. :> But in this case the deduction is questionable and I would not recommend disclosing the position on the return. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 18 Message 133 Sat Feb 13, 1993 S.CONROY1 [Sonsie] at 15:24 EST Doug, I've had an in-home office for about 20 years, and my husband now has one also (for the last two years). Either we are VERY small and insignificant, or very lucky...we've never once been audited, or even questioned about our return (except once, for a mathematical error in favor of the IRS). Perhaps I'm wearing rose-colored glasses, but I don't fear an audit even if it does happen to us. My office is clearly an office and not a bedroom/den/whatever, I have work records going back 20 years, I've complied with every IRS requirement I can think of. Harkening back to the old "sleeper sofa" question raised last month, my husband actually DOES have a sleeper sofa in his office. Mainly because there is no other room in the house in which it will fit. He moved in here when he lost his job, and we had no choice about what room he would work in. His office also is clearly an office...I can't imagine for one minute that an auditor would see it any other way. If the IRS chooses to take us to court over a $300 sofa, I'd say they'd be crazy and I'd say they'd lose. (And, if it looks like it's going to cost me a fortune to fight it, I'll simply give up the deduction.) =Sonsie= ------------