To claim a home office deduction the IRS requires that the location be used 100% exclusively for business. If any of it is used for personal use, the deduction will be disallowed. This does not mean that part of a home can’t be used for personal use but the part used for business must be exclusively used for that purpose.
In a recent situation, a taxpayer was the account director for a New York public relations firm based in Los Angeles and was the only employee in the New York office. The company did not provide an office and required her to use part of her apartment for an office which included a desk, file cabinets, shelves, a bookcase and a sofa. Her home address, business phone number and business email address were listed in the company’s space on its website but she was not reimbursed for use of her apartment. The taxpayer deducted a business expense for a home office for the unreimbursed expenses for using her apartment for conducting the company’s business.
They disallowed the deduction stating that the office was not used 100% exclusively for business because part of it was used for personal purposes. The taxpayer claimed that the portion of her apartment for personal use was minimal. and the deduction should be allowed. She appealed to U.S. Tax Court.
U.S. Tax Court Ruling
The court held for the taxpayer. The court said the taxpayer’s personal use of her apartment was minimal and “wholly attributable to the practicalities of living in a suitable studio apartment of such modest dimensions [Lauren Elizabeth Miller, Tax Court Summary Opinion 2014-74].
Although the IRS requires space in the home to be used 100% exclusively for business to sustain a home office deduction, a small unavoidable use of the space for personal purposes may not disqualify a taxpayer from claiming a deduction for unreimbursed home office expenses.