The benefits of working from your home for an employer make telecommuting appealing to many people. In most cases, however, the plus side may be confined to subjective, hard-to-measure factors. What is it worth to you to avoid rush-hour traffic jams or to wear whatever you want while working?If you are counting on an income tax benefit in the form of a home office deduction, you should understand that most telecommuters do not meet the demanding requirements for the deduction. Still, you will not know how you stand unless you first know the rules. If you do qualify, worthwhile tax breaks are available, consisting of deductions for such items as property taxes, mortgage interest, and utilities.
To qualify for the home office deduction, a taxpayer must meet several requirements relating to the business use of a dwelling. For example, as to the portion of a dwelling in question, it must be used exclusively and regularly for the purpose of carrying on a trade or business. When part of the dwelling is used for business by someone who is an employee, there is an additional requirement that has proved to be a stumbling block for many individuals seeking to claim a deduction. It sounds simple enough, but, as interpreted by the courts, it is a formidable legal hurdle. For an employee at home, the business use of the dwelling must be for the “convenience” of the employer.
Employer Convenience
There is no cut-and-dried formula for determining if office work at home is for the convenience of an employer. The answer depends on the facts and circumstances of each case. However, there are three alternative situations in which the employer convenience requirement may be met: (1) where maintaining the home office is a condition of employment–that is, the employer requires, not merely allows, the employee to maintain the office and to work there; (2) where the home office is necessary for the functioning of the employer’s business; or (3) where the home office is necessary to allow the employee to perform his or her duties properly. Unfortunately for taxpayers hoping for the deduction, it is not enough that working at home for an employer is appropriate or even helpful to everyone involved.
If an employer does not make work space available to an employee at some fixed location, the practical effect is that the employee is required to work at home, even if the employer has no written policy stating such a requirement. In this situation, which is still relatively unusual today, the employee should get it in writing from the employer that the employee has no choice but to work at home.
A Tale of Two Telecommuters
If working at home is not actually required, an alternative basis for qualifying for the deduction is to show that working at home is necessary if the employee is to perform properly for the employer. This, too, can be difficult for the taxpayer to prove. Consider the cases of two college professors, one who got the deduction, and one who did not.
The first professor, who got the deduction, kept an office at his home for some of the scholarly research and writing activities that were a part of his job. He actually had office space provided by his employer, albeit space he had to share with other professors. He also could use the college library. The problems with these work spaces were that there was a lack of privacy and no safe place to leave the professor’s materials. All in all, according to a federal court, there was no place like home, even for working.
In the other case, the professor was denied the deduction under similar circumstances. There, too, the professor complained that his on-campus office had deplorable security and was small, crowded, and noisy to boot. All of that only prompted the Tax Court to rule that the home office was for the professor’s convenience, not that of his employer.