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.

Tax Glossary

Consumer interest

Interest incurred on personal debt and consumer credit. Consumer interest is not deductible.

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