Academic journal article Journal of Accountancy

Home Office Deduction Change

Academic journal article Journal of Accountancy

Home Office Deduction Change

Article excerpt

The Taxpayer Relief Act of 1997 relaxed the home office deduction rules. Before the act, taxpayers who used their home offices only for administrative and managerial tasks were denied this deduction because of the U.S. Supreme Court's controversial decision in the 1993 Soliman case (Commissioner v. Soliman, 506 U.S. 168).

In Soliman, a self-employed anesthesiologist worked in several local hospitals but was denied office space in all of the buildings. Therefore, he did all of his bookkeeping, correspondence and professional reading in his home office. The Court decided the hospitals (not his home) were his principal place of business because the "essence" of his work was performed in the hospitals. His home office deduction was denied.

The Soliman decision has prevented thousands of consultants and self-employed individuals who work out of their homes from deducting any home-related expenses such as depreciation, repairs, maintenance and utilities. In order to encourage such individuals to work out of their homes and spend more time with their families, Congress amended Internal Revenue Code section 280A(c)(1).

A home office now qualifies as a taxpayer's "principal place of business" if (1) the taxpayer uses the office for the administrative or management activities of his or her trade or business and (2) there is no other fixed location of the trade or business where the taxpayer conducts substantial administrative or management activities. …

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