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Summary:

If you work from home, you may be wondering if you can deduct costs related to your home office — a part of your mortgage payment or rent, for example. But unfortunately the U.S. tax law in this area doesn’t recognize the work-life blend that most […]

If you work from home, you may be wondering if you can deduct costs related to your home office — a part of your mortgage payment or rent, for example. But unfortunately the U.S. tax law in this area doesn’t recognize the work-life blend that most home workers practice. If you mix business and personal activities in your home office, you can’t take the deduction.

The Wall Street Journal reports that most people eligible for this potentially lucrative deduction probably don’t take it:

“It is questionable whether most taxpayers who are eligible to take the deduction actually do so,” IRS National Taxpayer Advocate Nina Olson said in a report to Congress last week. She urged lawmakers to offer taxpayers a simpler, optional method of calculating the home-office deduction. [subscription required]

Why don’t more people deduct home office expenses? The WSJ identifies a number of reasons: the law is quite complex, requires extensive record-keeping, and is perceived to raise a person’s risk of being audited.

What might be the ultimate barrier for many home-based web workers, however, is the law’s requirement that, in order to deduct expenses for your home office, you use that part of the home exclusively as your principal place of business. Very few people use their home office only for work, even if it is their main place of business.

This law hasn’t kept up with the reality of work today. If you set up a comfortable home office with a nice computer, filing system, and workspace, you’ll probably do your personal work there — paying bills, for example. You might play games on the computer or use it for socializing too.

The law could allow a proration of time based on how the office is used; for example, allowing you to deduct 80% of costs if you spend 80% of the time in your office working. While this would add to the record-keeping burden, it would have the great benefit of allowing home-based businesses the opportunity to deduct actual expenses, just like other businesses can.

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  1. Does anyone know the Canadian tax law related to home office deductions?

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  2. You can in Canada. You just need the forms from the CRA (available on their site) to show how much space of your home is used for this, etc. Any Cdn. tax program will actually calculate this for you too.

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  3. When is the government finally going to put their money where their mouths are and really *do* something about foreign oil dependence, traffic congestion, pollution, etc. by fully embracing telecommuting for their own employees and encourage telecommuting in the private sector with tax law and other policies? Improving the Internet infrastructure in the U.S. wouldn’t hurt either.

    The time is now.

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  4. Let’s face it, most people rarely use their WORK office exclusively for business. People check personal email, shop online during their lunch breaks, etc. So, expecting someone to do that at home is ridiculous and wasteful.

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  5. Come to Canada – as Gerrit says our tax laws are very progressive. But only if you didn’t vote for Bush :)

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  6. Yes please, no bush voters here. I do write off part of my house as a business expense in Canada.

    @Chris: I think general consensus is that you DONT want government putting your money where their mouth is. They’ve really picked up on that in the last couple of year with the whole iraq war shannanigance. $40 can coke of coke?

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  7. The perceived risk of audit is pretty accurate. I had a co-worker that worked at the IRS for a while that said it was the number one thing that got you on the short list for an audit.

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  8. how about you wannabe North Americans save the political comments and focus on the article.
    If I want cradle to grave SOCIALISM (which is what Canada is), then I will go back to Australia. I have no preference for the President or his/her opponents. BUT I am interested in a fruitful discussion regarding home office taxation.

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  9. [...] I work from home so this caught my attention…"If you work from home, you may be wondering if you can deduct costs related to your home office — a part of your mortgage payment or rent, for example. But unfortunately the U.S. tax law in this area doesn’t recognize the work-life blend that most home workers practice. If you mix business and personal activities in your home office, you can’t take the deduction. What might be the ultimate barrier for many home-based web workers, however, is the law’s requirement that, in order to deduct expenses for your home office, you use that part of the home exclusively as your principal place of business. Very few people use their home office only for work, even if it is their main place of business." read more [...]

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  10. Direct from a NY Attorney:
    “..you aren’t allowed the deduction if you have a work
    office…
    Regarding the exclusivity rule, you don’t have to have a separate room for a
    business use, but you have to have a certain area set aside and your
    pro-ration of expenses would use that area vs. the whole area of the [apartment, house, etc].

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