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When the IRS Will Challenge Home Office Deductions

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The 2020 tax season is nearly over, but people will continue to use their homes as their place of business in the months ahead thanks to COVID-19. In the second of a three-part series, tax guru Julian Block talks about what the IRS allows these individuals to deduct and what's not permitted.

May 13th 2021
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For those of you who’re just joining in, part one discussed my responses to a query from Abigail, a self-employed consultant who uses part of her home to conduct her business.

Part two will explain that Abigail qualifies for home office deductions only if she satisfies three requirements. First, she uses that portion exclusively for work in her business. Second, she does so on a regular basis. Third, it’s her principal place of business.

“Exclusively” means just that. IRS examiners are sticklers about what constitutes exclusive use.

They tell Abigail to use the entire area—whether a single desk in a corner of her bedroom, or a room—only for business and nothing else. They disallow all home-office deductions when she uses her office for any investment activities, as discussed in part one, or personal family activities.

They relax when Abigail’s deduction is for a room that’s closed off from all non-business activities; they remain relaxed even when the office is just a small part of a room, as long as Abigail clearly separates the business portion from the rest—by a partition, perhaps.

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