Thanks to broadband technology and laptop computers, more people can work at home and leave the commuting to the rest of the world. To encourage this, Congress passed the Taxpayer Relief Act of 1997, which contained a modification of the IRS definition of ‘‘principal place of business.’’
Beginning in 1999, the new rules allowed those who don’t have off-site office space to deduct the expenses for maintaining a home office. Contractors, sales reps, consultants, and others who perform services outside their office but need a home office can now benefit.
However, you must use that office exclusively and regularly for business. You may also be entitled to a deduction if you use part of your home for business, such as maintaining paperwork or storing records.
One way of taking advantage of this rule is to convert or build a separate structure that’s not attached to your house. Detached garages, carriage houses, sheds, small barns, and so on make great home-office conversions.
For example, an architect converted a small barn into a studio that not only saved him a long commute but allowed him to work at home and save on expensive city rent. Depending on the percentage of your home you use for business, you should be able to deduct part of your utility bills, mortgage interest payments, repairs, depreciation, cost of an additional phone or DSL line, and office equipment, as well as other related expenses.
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