Released: November 07, 2006

Home-office deduction rules challenging

Source: Sandra Block, USA Today

A recent analysis of American commuting habits confirms what many weary workers already know: Commutes are getting longer. More Americans than ever are leaving home at 5 a.m. to 6:30 a.m. to beat the traffic. The number of workers who drive more than an hour to work rose more than 50% from 1990 to 2000, a study released last month by the Transportation Research Board found.

One way to escape gridlock is to work from home. You’ll get more sleep, and you may be eligible for some tax breaks. The home-office deduction lets you deduct a portion of your mortgage interest or rent, utilities, insurance and even repairs to your home.

But be careful. In a fact sheet it issued in September, the IRS said that understated business income and overstated business expenses are “an area where compliance is a concern.” Translated, that suggests you’re more likely to be audited if you claim the home-office deduction.

Not everyone who works at home is eligible to claim a home-office deduction. Even those who are eligible must meet some fairly rigorous IRS requirements. A couple of points to keep in mind:

• Working at home doesn’t automatically entitle you to the deduction. More than 22 million people work at home at least one day a week, according to the Telework Advisory Group, which promotes telecommuting.

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