J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

40.16 Home Office for Sideline Business

You may have an occupation and also run a sideline business from an office in your home. The home office expenses are deductible on Form 8829 if the office is a principal place of operating the sideline business or a place to meet with clients, customers, or patients. See the deduction tests (40.12) and the income limit computation (40.15) for home office deductions. Managing rental property may qualify as a business.

EXAMPLE

A doctor was employed full time by a hospital. He also owned six rental properties that he personally managed. He sought new tenants, supplied furnishings, and cleaned and prepared the units for tenants. He used one bedroom in his two-bedroom home exclusively as an office to manage the properties. The room was furnished with a desk, bookcase, filing cabinet, calculators, and answering service; furnishings and other materials for preparing rental units for tenants were stored there. According to the Tax Court, the doctor’s efforts in managing the rental properties constituted a business; he could deduct expenses allocable to the home office.

Managing your own securities portfolio.

Investors managing their own securities portfolios may find it difficult to convince a court that investment management is a business activity. According to Congressional committee reports, a home office deduction should be denied to an investor who uses a home office to read financial periodicals and reports, clip bond coupons, and ...