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Vacation Home-Office Deductions
If you have your own business, you may be able to claim a home-office deduction on your vacation home
By Deepa Venkatraghvan
- If you or your clients use a vacation home for business, the IRS rules for claiming a home-office deduction can apply to your vacation home.
- If two residential locations are used for offices and one is the vacation home, it can be difficult to claim both—but it’s not impossible.
- Document your use of all locations that are used for office purposes and make a substantiated claim. Just don’t push your luck with this one.
In an earlier piece, we saw how a new “safe harbor” method to calculate home-office deductions might significantly reduce paperwork and make the process of the claim much simpler. At the same time, we explained how this method might not necessarily be beneficial for many, especially those with large home offices. Today, we give you another tip. You might actually be able to claim a home-office deduction on your vacation home.
The definition of what qualifies as a home office does not change, even if the home in question is a vacation home. That means the vacation home office must be used as your principal place of business. The area designated as a home office must be used “regularly and exclusively” for business and cannot double as a place that you use for business as well as personal purposes.
If all these parts of the definition apply to your vacation home office, you can make the claim easily.
1. Vacation home office as principal place of business
If you work from the vacation home for the most part of your practice—that is, you perform all important activities at this place, spending relatively more time here—this home would be your principal place of business. For instance, suppose you live in House A but you commute every day to House B, which is your vacation home, and you work from an office there. In this case, you can claim a deduction for the portion of your vacation home that you use regularly and exclusively for your business. You cannot claim a deduction for use of your vacation home during weekends or after office hours.
If you have separate office premises for conducting your business and you use your vacation home to meet physically with patients, clients or customers on a regular basis, you may claim the vacation home as a home office.
2. Vacation home office used exclusively and regularly for business
The part of your vacation home that you have marked as an office must be used exclusively for business. That is, you cannot use the office space for recreation or other purposes when it is not in use as an office.
You must use the vacation home office regularly for business. The IRS does not specify the definition of “regular,” but the use of your vacation home office must be substantial and integral to your business.
Two home offices?
So, clearly claiming only a vacation home office may not be such a difficult task. The challenge arises when you use part of your main home as well as part of your vacation home for business purposes, and you would like to claim both offices as a deduction. In such a case, it might be difficult to meet all parts of the definition—a vacation home office used exclusively and regularly as principal place of business.
You probably won’t be able to qualify for the deduction if you use your vacation home office for only a few weeks a year. But if you use your vacation home for a significant period of time, you may qualify.
Let’s look at the popular case of Moller v. United States in this regard. In 1976, the Mollers’ expenses included $5,832.88 as the cost of maintaining an office in their principal residence in Scottsdale, Arizona, and $1,606.77 as the cost of maintaining a second office in their summertime residence in Santa Barbara, California. They spent 40 to 42 hours per week working in their Santa Barbara home all through the summer and the rest of the year working from their Scottsdale home. Thus they spent about 480 hours each year working from their vacation home and were able to claim both locations.
Based on this case, you may be able to qualify successfully if you spend long amounts of time working from your vacation home. However, because the IRS does not define the term “regular,” you never can be sure.
Of course, if you have multiple businesses and conduct one from your main home and one from the vacation home, you would qualify for deductions on both, provided you met all other criteria.
Claiming home office deductions is widely believed to be a common red flag for an IRS audit. At the same time, genuine use of your home, either the main or the vacation home, for business purposes can hand you a valuable deduction. Document your use of all locations that are used for office purposes and make a substantiated claim. Just don’t push your luck with this one.
DISCLAIMER: The views expressed in this article do not necessarily express the views of Elite Advisor Report or CEG Worldwide, LLC, and should not be construed as professional tax advice.