taxes - soaked for extra $

[Don McCallion]

On 4/10 Avery wrote:

>   Has this changed in recent years? When I was self-employed in San
>Angelo, my CPA told me you could claim a deduction for a home office *if*
>you didn't have to go through that office to get to any of the other rooms
>of the house, i.e. a bedroom office.
>   This doesn't apply to me any more, but I'm curious.

The home office deduction rules have changed, Avery.  The prior rule was
to the effect that the space in your home which you claimed as an office
had to be exclusively used for business purposes.  There was no
requirement that you couldn't walk through it to get to some other room,
however.

The rules were tightened as a result of IRS regulation changes, which
were upheld by the U.S. Tax Court.  In the now-famous case of the
anesthesiologist who used a room in his home solely to do his bookkeeping
and scheduling (and didn't have another office), the Tax Court upheld the
IRS disallowance of the home office deduction because the good doctor
didn't meet patients there...he, of course, performed his services at the
local hospitals.  It seems to me that this case has direct applicability
to piano techs and tuners.

There are bills in Congress to restore the former home office rules.  If
you use a detached garage (see if the post office will give you a
separate address for it like 25-A) or have an office located off your
home property, you have much less trouble with Uncle.

A ticking time-bomb with a lot of home office deductions explodes when
you sell your house.  The portion that you have claimed as an office may
be treated as business property and therefore is not exempt from the
usual capital gain rollover when you buy a new house for more money or
the one-time capital gain exemption (for those over 55).  There may be
other ramifications as well (depreciation recapture - you really don't
want to know).

The lesson:  what you deduct now may be added back later.  Only you can
figure out if it's really worth it now.

See IRS publication 587 and the instructions for Form 8829 before making
a decision.
And of course, consult your own tax advisor to deal with your individual
circumstances.  (I have to say that)

Don McCallion - don@ct2.nai.net
New Milford, CT
(admitted to bar, U.S. Tax Court)