How to Prove “Regular Use” for Home-Office Deduction
To deduct an office in the home, you must pass the regular-use test, so what is regular use for the home-office deduction?
(Side note: this is a re-post of content created in 2011 and references tax cases from the 70’s that laid a foundation for determining how to define “regular use” for the home office deduction. Now there are several apps and digital means of proving your regular use, such as time tracking apps that you can use on your home computer, Google location history to track how much of your work day is spent at your home office, etc.)
In its audit manual, the IRS states:
“Regular use means that you use the exclusive business area on a continuing basis. The occasional or incidental business use of an area in your home does not meet the regular use test even if that part of your home is used for no other purpose.”
The IRS, in its proposed regulations, states that it makes its determination of regular use of the home office in light of all your facts and circumstances. As you can see, the IRS still leaves much up to interpretation. We turn to the courts for assistance.
Frankel v. IRS Case
Max Frankel, the editor of the New York Times, testified that, during the years in issue, he used his home office to speak over the telephone with prominent politicians at the national, state, and local levels and also labor leaders and leaders of the community in general. Such discussions averaged one per night, and each such discussion might require several actual telephone calls to complete. In a decision reviewed by the full U.S. Tax Court, the court stated: “Unquestionably these contacts were sufficiently frequent to meet the statutory requirement of use of the home office on a regular basis.”
Green v. IRS Case
John Green could not be reached during much of the day, and because many of his callers could not themselves make telephone calls during the day, he was required (as a condition of his employment) to receive a substantial number of telephone calls from clients at his home after his regular working hours, averaging 2 1/4 hours a night, five nights a week. The full Tax Court reviewed the Green case and concluded that the time spent by Mr. Green met the requirements for regular use of his home office.
How Do You Prove Your Regular Use of Home Office?
Your regular use faces one big problem: how do you prove your regular use? In Christo, the court stated:
We do not suggest that the frequency or regularity of meetings or dealings must match the level we faced in Green in order to meet the requirements for regular use. However, in this case we have so little information that we cannot tell whether the facts, if we knew them, would satisfy any reasonable interpretation of regular use.
Mr. Frankel and Mr. Green had convincing proof. That’s what you need, too. Think like a prosecuting attorney.
You can use two sets of information to prove regular use of your home office:
Now think corroborative evidence. Let’s start with the mail and say it’s email. What proof do you have that you opened and responded to email on this day, at this time, as you state in your log?
Answer: Your sent emails are proof. Save your sent emails. A client met you at your home. How would you prove that? You could keep a home-office guest log and have your client sign in. You might have email correspondence proving the meeting. Again, think proof. You can prove business calls with your home phone bill or other phone record from the phone company. If you don’t get a detailed bill or other summary, contact your phone company and have them send you what you need.
Regular Use of Home Office To-Do List
To ensure compliance with the home-office rule that requires regular use, make sure that you use your home office an average of 10 hours a week or more. It’s possible that the courts would accept less than 10 hours, as indicated in the Cristo case, but why take chances. You might ask, what about Mr. Frankel—didn’t he spend less than 10 hours a week? We don’t know. The court did not specify the time spent, only the regularity of it.
So, make an average of 10 hours a week your target until either the IRS or the courts give you a better number. Next, make sure that you build proof that you worked those 10 hours or more.
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