Home-office deductions are only available if the home office is used in a trade or business and not merely for income-producing activities.
The ownership and management of real estate qualifies as a trade or business where the taxpayer's activities are regular, systematic and continuous.
The U.S. Tax Court allowed a physician who used his home office to manage six separate units of residential property to deduct his home-office expenses.
The court found that the taxpayer was in the business of real estate rental. His activities included seeking new tenants, supplying furnishings, and cleaning and otherwise preparing the units for new tenants.
However, a nurse-anesthetist who rented out 80 acres of farm land but was not actively involved in managing the property was not allowed to take the home-office deduction.
Real estate investors who run their businesses from a home office should carefully document their active management of their properties to show that they are not mere investors.
Robert Friedman is an attorney with offices in Akron, Williamsville and Buffalo. He is the author of "How to Survive Legally as a Landlord" and "Small Business Legal Handbook". If you would like a question of general interest relating to law and real estate answered in this column, sent it to: Robert Friedman, 74 Main St., P.O. Box 31-L, Akron, NY 14001-0031.