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.