You can have more than one business location, including your home, for a single trade or business. To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. To determine your principal place of business, you must consider all the facts and circumstances.
Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements.
You use it exclusively and regularly for administrative or management activities of your trade or business.
You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.
Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors.
The relative importance of the activities performed at each location.
If the relative importance factor does not determine your principal place of business, the time spent at each location.
If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. However, see the later discussions under Place To Meet Patients, Clients, or Customers or Separate Structure for other ways to qualify to deduct home office expenses.
Administrative or management activities.
There are many activities that are administrative or managerial in nature. The following
are a few examples.
- Billing customers, clients, or patients.
- Keeping books and records.
- Ordering supplies.
- Setting up appointments.
- Forwarding orders or writing reports.
Administrative or management activities performed at other locations.
The following activities performed by you or others will not disqualify your home office
from being your principal place of business.
You have others conduct your administrative or management activities at locations other than your home. (For example, another company does your billing from its place of business.)
You conduct administrative or management activities at places that are not fixed locations of your business, such as in a car or a hotel room.
You occasionally conduct minimal administrative or management activities at a fixed location outside your home.
You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home.)
You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead.
Example 1.
John is a self-employed plumber. Most of John's time is spent at customers' homes and
offices installing and repairing plumbing. He has a small office in his home that he
uses exclusively and regularly for the administrative or management activities of his business,
such as phoning customers, ordering supplies, and keeping his books.
John does not do his own billing. He uses a local bookkeeping service to bill his customers.
John's home office qualifies as his principal place of business for deducting expenses for its use. He uses the home office for the administrative or managerial activities of his plumbing business and he has no other fixed location where he conducts these administrative or managerial activities. His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. He meets all the qualifications, including principal place of business, so he can deduct expenses (to the extent of the deduction limit, for the business use of his home.
Example 2.
Pamela is a self-employed sales representative for several different product lines. She
has an office in her home that she uses exclusively and regularly to set up appointments
and write up orders and other reports for the companies whose products she sells. She occasionally
writes up orders and sets up appointments from her hotel room when she is away on
business overnight.
Pamela's business is selling products to customers at various locations throughout her territory. To make these sales, she regularly visits customers to explain the available products and take orders.
Pamela's home office qualifies as her principal place of business for deducting expenses for its use. She conducts administrative or management activities there and she has no other fixed location where she conducts administrative or management activities. The fact that she conducts some administrative or management activities in her hotel room (not a fixed location) does not disqualify her home office from being her principal place of business. She meets all the qualifications, including principal place of business, so she can deduct expenses (to the extent of the deduction limit, for the business use of her home.
Example 3.
Paul is a self-employed anesthesiologist. He spends the majority of his time administering
anesthesia and postoperative care in three local hospitals. One of the hospitals provides
him with a small shared office where he could conduct administrative or management activities.
Paul does not use the office the hospital provides. He uses a room in his home that he has converted to an office. He uses this room exclusively and regularly to conduct all the following activities.
- Contacting patients, surgeons, and hospitals regarding scheduling.
- Preparing for treatments and presentations.
- Maintaining billing records and patient logs.
- Satisfying continuing medical education requirements.
- Reading medical journals and books.
Paul's home office qualifies as his principal place of business for deducting expenses for its use. He conducts administrative or management activities for his business as an anesthesiologist there and he has no other fixed location where he conducts administrative or management activities for this business. His choice to use his home office instead of one provided by the hospital does not disqualify his home office from being his principal place of business. His performance of substantial nonadministrative or nonmanagement activities at fixed locations outside his home also does not disqualify his home office from being his principal place of business. He meets all the qualifications, including principal place of business, so he can deduct expenses (to the extent of the deduction limit) for the business use of his home.
Example 4.
Kathleen is employed as a teacher. She is required to teach and meet with students at the
school and to grade papers and tests. The school provides her with a small office where
she can work on her lesson plans, grade papers and tests, and meet with parents and students.
The school does not require her to work at home.
Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. She uses this home office exclusively and regularly for the administrative duties of her teaching job.
Kathleen must meet the convenience-of-the-employer test, even if her home qualifies as her principal place of business for deducting expenses for its use. Her employer provides her with an office and does not require her to work at home, so she does not meet the convenience-of-the-employer test and cannot claim a deduction for the business use of her home.
More Than One Trade or Business
Whether your home office is the principal place of business must be determined separately for
each trade or business activity. One home office may be the principal place of business
for more than one activity. However, you will not meet the exclusive use test for any activity
unless each activity conducted in that office meets all the tests for the business use of
the home deduction.
Example.
Tracy White is employed as a teacher. Her principal place of work is the school. She also
has a mail order jewelry business. All her work in the jewelry business is done in her
home office and the office is used exclusively for that business. If she meets all the other
tests, she can deduct expenses for business use of her home for the jewelry business.
If Tracy also uses the office for work related to her teaching, she would not meet the exclusive-use test for the jewelry business. As an employee, Tracy must meet the convenience-of-the-employer test to qualify for the deduction. She does not meet this test for her work as a teacher, so she cannot claim a deduction for the business use of her home for either activity.
Exclusive Use
Regular Use
Trade or Business Use
Principal Place of Business
Place To Meet Patients, Clients, or Customers
Separate Structure
Information courtesy of the Internal Revenue Service.
