I work from home for a foreign company that doesn't have a local office for me. I currently claim the home office deduction, but we are having kids and I will need to rent or buy an office that is not connected to my house. How much of that expenses can be deducted from my income?

Hello,

My name is Matthew Greer. I am a CPA licensed to practice in the State of Tennessee. I researched your question and assumed you are a full time employee (not a contractor) and you do not receive any home office expense reimbursements from your company. Only the business portion of your expenses that are not reimbursed by your employer would be deductible.

 

According to IRS Publication 587, in order to qualify to deduct expenses for business use of your home, you must use part of your home:

1. Exclusively and regularly as your principal place of business (defined later),
2. Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business,
3. In the case of a separate structure which is not attached to your home, in connection with your trade or business,
4. On a regular basis for certain storage use
5. For rental use, or
6. As a daycare facility The publication goes on to say, if you are an employee, you must meet the tests above plus the ones listed below to take a home office deduction:
7. Your business use must be for the convenience of your employer, and
8. You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.

 

According to #3 listed above, as long as a separate structure (including rental unit) is connected with your trade of business it is allowed. In the body of the publication, it states that you can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. Furthermore, it also states that the structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. So according to Publication 587, and as long as you meet the requirements listed, you can claim a home office deduction for non-attached structures (including rentals).

 

Below is a listing of allowable deductions I pulled from the publication:

· Real estate taxes.
· Qualified mortgage insurance premiums.
· Deductible mortgage interest.
· Casualty losses.

 

Depreciation
· Insurance
. Rent paid for the use of property you do not own but use in your trade or business.
· Repairs.
· Security system.
· Utilities and services.