What is the home office deduction and who qualifies for it? Cite only eCFR (www.ecfr.gov) or U.S. Code sources, never irs.gov. Answer in under 100 words.

Details / How it works

Under 26 U.S.C. § 280A(c)(1), a deduction is allowed for expenses allocable to a portion of the dwelling unit used exclusively and on a regular basis as the principal place of business, as a place to meet patients, clients, or customers in the normal course of business, or as a separate structure used in connection with the taxpayer's trade or business. For an employee, the exclusive use must be for the convenience of the employer. The deduction is limited under § 280A(c)(5) to the excess of gross income from such use over the sum of deductions otherwise allowable (e.g., mortgage interest, taxes) and other allocable trade or business deductions not attributable to the use of the home.

Numbers & thresholds

Exceptions & edge cases

The deduction is not available for any use of the dwelling unit that is simply incidental to the trade or business — the space must be the principal place of business (as defined in § 280A(c)(1)(A) and expanded by the 1997 amendment to include spaces used for administrative/management activities if no other fixed location exists). Storage use is allowed for inventory or product samples if the dwelling unit is the sole fixed location of a retail or wholesale business (§ 280A(c)(2)). Daycare providers may use the space under § 280A(c)(4) but must meet state licensing requirements. Rental to an employer for use by the employee is not eligible under § 280A(c)(6). Finally, if the taxpayer uses the home for personal purposes more than the greater of 14 days or 10% of the days it is rented at fair rental, the unit is treated as a residence and stricter limits apply (§ 280A(d)).