Tax Court: Keys to Deducting Home Office Storage

Tax Court: Keys to Deducting Home Office Storage

If your clients qualify, they can deduct home office expenses when they work from home, as well as claiming a deduction for certain storage expenses. However, in a new case, Najafpirv, TC Memo 2018-103, 7/3/18, a taxpayer who operated a “smog check” business watched his deduction vanish into thin air.

Generally, to qualify for home office deductions you must use a part of your home regularly and exclusively as your principal place of business or a place where you meet clients or customers in the normal course of business. This entitles you to deduct direct expenses of the home office plus a proportionate share of regular household expenses (e.g., utilities and repairs) and depreciation. Alternatively, you may use a simplified method, equal to $5 per square foot, up to a $1,500 maximum. What’s more, if you use part of your home to store inventory or product samples, you can deduct expenses for that area without regard to the “exclusive use” requirement.

However, your clients must meet ALL of the following tests:

  • You sell products at wholesale or retail as your trade or business
  • You keep the inventory or product samples in your home for use in your trade or business
  • Your home is the only fixed location of your trade or business
  • You use the storage space on a regular basis
  • The space you use is a separately identifiable space suitable for storage

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