Tax Tip of the Week | No. 266 | Home Office Deduction Not Precluded by Minor Personal Use

Tax Tip of the Week | Sept 3, 2014 | No. 266 | Home Office Deduction Not Precluded by Minor Personal UseA recent court case....

The Tax Court sided with the plaintiff in a recent case involving the rules surrounding the home office deduction. The deduction is allowed for the portion of a residence that is used exclusively and on a regular basis as the principal place of business for a taxpayer.Setting aside an area of the dwelling for exclusive use is not always easy, however. In Lauren Miller’s case, the IRS challenged her deduction for the expenses allocable to one-third of her New York City studio apartment of 700 square feet.Miller was employed by BrandingIron Worldwide (BIW), a company that provides public relations, advertising, and marketing services. BIW is headquartered in Los Angeles, while at the time she was hired; Miller was BIW’s only employee in New York.Miller used part of her apartment as an office throughout 2009. BIW listed her apartment address and telephone number on its Web site as the address and phone number for its New York office.  Miller usually worked weekdays between 9 a.m. and 7 p.m., but was generally expected to be available at all times.Miler’s studio apartment, a single room, was divided into three equal sections: an entryway, a bathroom, and a kitchen area; office space, including a desk, two shelving units, a bookcase, and a sofa; and a bedroom area including a platform bed and dressers. Miller has to pass through the office space to get to the bedroom area.Miller frequently met with BIW clients in the office space, and she performed work for BIW using a computer on the desk. The bookcase and shelving units were used to store books, magazines, supplies and samples related to her work for BIW and its clients. Although she used the office space primarily for business purposes, she occasionally used the space for personal purposed. BIW did not reimburse Miller for any of the expenses related to her apartment.The Tax Court, in Summary Opinion 2014-74, noted that if the taxpayer is an employee, the deduction for a home office is only allowable if the exclusive use of the office space is for the convenience of the taxpayer’s employer. In Miller’s case, BIW listed her apartment address on its Web site as its New York office address, and Miller “testified credibly that she regularly used one-third of her apartment space as an office to conduct BIW business, she met with clients there, and she was expected to be available to work well into the evening.”The court agreed with Miller that her apartment was her principal place of business that she was obliged to use the space as an office for the convenience of her employer, and that BIW was not able or willing to reimburse her for any of her apartment-related expenses.“Although Petitioner admitted that she used portions of the office space for nonbusiness purposes, we find that her personal use of the space was de minimis and wholly attributable to the practicalities of living in a studio apartment of such modest dimensions.”Therefore, the court concluded that Miller was entitled to the home office deduction.

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