How to Set Up a Home Office for Your Option Investment Business

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For a home office to qualify as a business deduction for federal tax purposes, it must be used regularly and exclusively for business purposes. For example, if you are a part-time real estate investor and a full-time schoolteacher with a home office that you claim as a real estate investment business expense but you use your office for both your real estate investment business and for grading student papers, your home office deduction would be disallowed if you were ever audited by the Internal Revenue Service (IRS). The IRS would do this because your home office is not being used exclusively for business purposes. The best way to make certain that your home office will pass muster with the IRS is to regularly use the space you are claiming as your home office exclusively as your principal place of business. I comply with the IRS home office use rules by having a home office that is located in a separate building behind our home—approximately 40 steps to walk—and used exclusively for business purposes. For more information on how to deduct your home office as a business expense, read IRS Publication 587, Business Use of Your Home, which is available online at the following web page: www.irs.gov/pub/irs-pdf/p587.pdf.

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