August 1, 2018 11:02 pm

No Home Office Deduction for Records Storage

To claim a home office deduction, space must be used regularly and exclusively for business. There are two exceptions to exclusive use: day care businesses and storage of inventory or product samples for someone in the retail or wholesale business. However, storage of other business-related materials, such as customer records and invoices does not qualify for this exception. Take this case:

A smog inspector was required by California to keep records, which he did in his garage. This was the most convenient and least expensive solution to the recordkeeping requirement. He claimed a home office deduction for the space on his Schedule C, which the IRS disallowed. The Tax Court agreed with the IRS (Mohammad Najafpir, TC Memo 2018-103). The court pointed out that business records are not inventory or product samples.

Previously the Tax Court disallowed deductions in similar situations to:

  • An attorney storing legal files and books (Druker, 77 TC 867 (1981)
  • A dentist storing patient records (Pearson, TC Memo 1982-292).

Reminder: Employees cannot take a home office deduction in 2018 through 2025 due to the suspension of the miscellaneous itemized deduction subject to the 2%-of-AGI floor. This is so even if they work at home for the convenience of their employer.

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Tax Glossary

Miscellaneous itemized deductions

Generally, itemized deductions for job and investment expenses subject to a 2% of adjusted gross income floor.

More terms