Home Office Deduction

6 Replies

Hi all!

I had a pointed question related to the home office deduction. I am a real estate agent (licensed in May), an attorney with a full-time job separate from my real estate business, and an investor with several properties and am the property manager for those properties. 

I believe I would qualify for the home-office deduction since I perform most of my real estate business at my house (writing contracts, making appointments, pretty much everything except for showing properties). So in that sense, I am pretty confident I would qualify. However, I also have a full-time job (40 hours a week) as an attorney 20 minutes from my house that I am claiming as a home office deduction. Do you all see any problems here? I can seek out advice from a CPA, which I plan on doing so in February, but I want to know if this is something I should start preparing for the CPA and all the expenses related to it. I also conduct a lot of my property management for my properties administrative work at home for what it is worth. 

One separate question, if I do have it as a home office deduction, can I claim all miles from there to the properties I show, etc., and back as deductible miles?

THANKS!

-Matt

I will let a CPA correct me, but it's my understanding that you can deduct the home office.  I don't think your full time job would permit or appreciate you conducting outside business from their office, so it seems like a justification to me.  For the precise way you would need to structure this, you should talk to your tax person.  I also believe the miles you drive related to your real estate business are tax deductible.  I would keep track of everything and hand it over to your CPA and let them take what they can.  They won't be able to take the deductions if you don't track it or account for it.

You might find this podcast helpful:

https://www.biggerpockets.com/renewsblog/2013/12/1..

Also, where is this mystical 40-hour a week attorney job?  I want to go to there.

On second read of your post, it seems like maybe you are self-employed with a separate office for that business?  And you are claiming a home office deduction for the office 20 minutes from your house?  Would that not just be an office and not a home office?

It sounds like you are a perfect candidate for a home office deduction.  Depending on how often you are in that home office, you may also be a great candidate for a mileage deduction not just for driving from that home office to show properties, but also driving from your home office to your other office.  Mileage driving to work from home (commuting) is not deductible, but mileage driving between jobs may be.

My understanding is the space must be exclusively devoted/used for business AND have a DBA (or other legal entity name) attached to the activity.

CAVEAT EMPTOR:  This deduction ( I was told by my Calif CPA) is a red flag and frequently yields further tests by the IRS for the hobby-as-business ruse.

Originally posted by NA Beard:

My understanding is the space must be exclusively devoted/used for business AND have a DBA (or other legal entity name) attached to the activity.

CAVEAT EMPTOR:  This deduction ( I was told by my Calif CPA) is a red flag and frequently yields further tests by the IRS for the hobby-as-business ruse.

 You're correct - one must otherwise qualify for the home office, one of which if that the space must be exclusively devoted to the business.

However, your CPA is using some very old information when stating that the home office deduction is a red flag.  That was definitely the case several decades ago, but the IRS does know and understand that more and more taxpayers genuinely have the ability to take a home office deduction.  While it is true that a home office deduction would cause an uptick in the odds of an audit in the past, it is no longer the case.

That said, in the event that you are flagged for an audit for some other reason, an auditor will more than likely look into a home office deduction while they are looking into the primary issues.

But if you are otherwise qualified to take a deduction, you shouldn't allow the possibility that it might be hard to substantiate lead you to leave it behind.  You should just do everything necessary to substantiate it, keep those records and confidently take the deduction.

Originally posted by NA Beard:

My CPA is a registered IRS agent and has been successful defending many clients.

I'll stick with him

 Of course - to each his own and we should all do what we are comfortable with and look to the experts we know and trust for advice.  I'm certainly not advocating that your situation is such that you should be claiming it.  I'm just saying that for those who can validly take the deduction, they shouldn't let all the hype scare them and they should go ahead and take it if they fulfill all the requirements.

I'm happy to say that I'm starting my 19th year of tax preparation and have never had to defend a client to the IRS over my own work or a deduction taken, so clearly your CPA has a lot more experience defending his work to the IRS than I do and so would know what is going on with his clients that is requiring the defense in the first place.  It's cool he's defending them successfully, but kinda sucks that he has to defend them at all.