Does The Tax-Home Rule Destroy Your Business Travel and Home Office Deduction
Question
I recently took over an insurance agency office that is over 60 miles away from my home.
We do not want to move to the other city as are our children a good school system and have a lot of friends, and my wife has a really good job where we live.
I have an administrative office in my home, where I do all my sales and marketing planning and paying bills, but I need to stay a couple of nights a week at the other location, away from my home.
I think that the most economical to do that is to purchase a fifth wheel RV and put it on my in-laws’ farm or at a campsite rather than staying at a hotel or apartment, or purchasing a second home. Would I be able to write off the Fifth Wheel?
Answer
Probably Not!!
As your administrative office, your home office is your principal office that eliminates the commuting to your local and temporary office locations. 1
But a principal office in your home doe not necessarily establish your “TAX-Home” for tax deductible travel. 2
The IRS points out that when you stay overnight your trigger the travel rules 3 , but inside the travel rules you rub against the Home-Office rules.
Tax Home Rule
When you have two or more places of business, your “tax home” is where you locate your principal place of business. 4
Your tax-home is your principal place of business is different from your home office place of business. The location of your home office is a question of fact. Important factors include: 5
Ø Time spent at each location
Ø Degree of business activity at each location, and
Ø Financial return from each location
Thus, in your situation, your tax-home is not the family home, but the one that is 80 or so miles away.
Accordingly, the cost of the fifth wheel or hotel and meals are not deductible at the out of town location
HOME OFFICE DEDUCTION. Tax law creates your administrative office as a statutory principal office for deducting that office, the IRS treats your statutory office as principal office for eliminating the need for commuting. 6 And as we stated above this rule does not apply to overnight business travel.
How About This
OK, then let me try a different scenario,
In the town where I live with my family, I use to have an agency office. I continue to service many of those prior clients.
To accommodate my hometown clients and improve my ability to administer that office more than 60 miles away. I am in the process of building an office in a separate building next to my home and I will have that office completed by years end.
I do not plan to put this office in the phone book or advertise its location, but I do need to service my hometown clients. It will be equipped with the proper computer systems, phones, and documents required to write new business and service new clients. Will this office count as another agency office?.
YES, it counts as an office. The lack of advertising and chasing new clients in your hometown is likely to make this a second office, because you are not going grow it, and it likely that the more than 60 mile away office will have the greatest degree of financial activity and produce the highest financial return.
Reminders
When you travel away from home overnight, you trigger the tax-home rule, you may not deduct overnight travel costs when you travel from your residence to your tax home.
When you drive from your administrative home office to another office location within your tax home, your miles count as business miles. Thus, if you have a regular office outside the home and a administrative office inside the home and both offices are inside the area defined as your tax home, then mileage to your regular office is your business mileage.
References
- Rev. Ruling 99-7
- Ibid
- Chief Council Advice 2002-7047
- Rev. Ruling 93-86, Rev. Ruling 75-432, Mackey VS Commissioner 490 F.2d 1249 (6[SUP]th[/SUP] Cir.) 1974
- Rev. Ruling 54-147
- Rev. Ruling 99-7
You must use a room exclusively for your office and it must consist of the following only:
- Desk
- Desk Chair
- Computer, Monitor use for Business Only. If any part is used for personal use it cannot be used.
- File cabinets
- Printer, Scanner, Fax Machine or 3 in 1
- All Office Storage
If there is anyother type of furniture or electronics in this romm it is not considerd a Home Office, because it is not exclusive "USE"
The home office deduction is used based on area of the house,
The home has to be depreciated without the land.
All expenses,
- Total Square Footage of your Home
- Total Square Footage of the Room that is used for Office
- Total actual Hours office is used per day.
- Real Estate Taxes
- Mortgage Interest,
- Homeowners Insurance,
- Rent
- Repairs and Maintenance ( landscaping, interior or exterior repairs, Appliances are not included.
- Utilities, Gas, Electric, Phone if using same line.
- Fair Market value of Home at time first used as office deduction
- Fair Market value of Land alone same as home
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