By: A.J. Cook

More workers with home offices can now deduct some home expenses. A new law could reduce taxes on the return you are now preparing.

The change could affect artists, musicians, hospital-based doctors, outside sales people and others who use their home office to keep records or schedule appointments.

New law. Before, to get the deduction, unless you met customers or patients at your home office, you had to earn income there. This was like soliciting insurance on the phone from home. Now you may qualify even if you do only bookkeeping or schedule appointments at home. One big if limits the opportunity: Your office qualifies if there is no other fixed location where you do administrative work. Typically, if this requirement is satisfied, a house painter who spends much of his time at job sites and a salesperson who visits customers may be allowed the deduction. In one court case an entrepreneur owned a Laundromat a few miles from home. She went there daily to collect money and meet with employees. She then worked two hours a day in her home office keeping books and performing managerial tasks. Before, she couldn’t deduct home expenses: now she can.

Use Space Exclusively. The home office need not be a whole room or even marked off by a permanent partition. It only needs to be an identifiable dedicated space. As under the old law the space must be used for business exclusively. If you work on the dining room table you can’t serve meals on it. An Ashland, KY., consultant wanted to know if he could deduct some costs for the home office in his spare bedroom. He did computer work at a desk and used the twin beds for work tables when he had no guests. In this example, the area around the beds is not used exclusively for business because guests slept there. But the area around the desk might qualify.

Deduction amount. Home office workers can deduct part of the expenses of the entire house or apartment such as the following: rent or depreciation, utilities, housekeeping costs, home insurance and general repairs. No lawn care, however, says the IRS. Compute the deduction by comparing the business area to the area of the whole house or apartment. Consider either the number of rooms or square footage. For example, if a taxpayer has a seven room home and uses one room exclusively for business, then the deduction is one-seventh of the allowable household expenses. Or, if an apartment is 1,000 square feet and 200 square feet are dedicated as a home office, then one-fifth of the allowable expenses may be deducted.

Four more points.

1. You must use the space for business regularly.

2. If you are an employee, the space must be used for your employer’s convenience. Qualifying for the deduction is especially difficult if you already have an office at your employer’s place of business.

3. Using your office only to manage your personal portfolio of stocks and bonds does not qualify.

4. Until the Internal Revenue Service gets used to the idea, home office deductions may still trigger audits, so back up deductions with records.

The Moral: Now, more than ever, home may be where the deductions are.