Home office exclusively in detached garage, can we still deduct home utilities etc.

Forum|Forum|2 years ago
February 28, 2024
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We converted our detached garage into office space where clients are seen regularly. I understand this should qualify for the home office deduction, and we can therefore deduct a percentage of the home's utility and maintenance costs. However, it's a detached structure that doesn't consume some of the home's utilities. For example it has no gas line or water line going out there, but we do have to pay those utility bills for our home in general. As this is a separate structure on premises, I'm wondering if we are still allowed to include utility and maintenance costs for the primary home even if we know those bills do not impact the separate structure.

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Best answer by ThomasM125

@ThomasM125 But as I understand all those pro-rated (by sq ft) deductions are specifically for the functionality of the "whole home" rather than the just the space used for business. For example, the water bill is a common documented example of one that can be deducted for home office. Hardly any home offices actively install a sink and use water inside their home office, but it's part of the home's general utilities so it uses the prorated deductible formula.

I would think all mechanical systems / utilities fall in the same bucket here, not differtiated by if a specific utility happens to be used within the confines of the business space .

Does the IRS specifically differentiate what it means by "whole home" when the homestead has two structures on the property separated by a breezeway?

As per this article from the IRS, you can deduct expenses for keeping up and running your entire home, but that assumes your office is in the home. One would assume this is because you can't operate the office without the house it sits in. The article also says that you can't deduct expenses for the parts of your home not used for business. I can't interpret this for you, I can only mention that the IRS could argue that the house is not used for business, so they could deny the utilities that only service the house.

AnnetteB6

Since the separate structure does not utilize the gas or water utilities, it would not make sense to include those as part of your home office expense. If you did claim a portion of those utilities and you happened to be audited, it could be disallowed.

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Aquarius5Author

@AnnetteB6 Thank you for your response. After thinking about this further I am wondering if there is more of a gray area here though. It is true that the separate structure does not have a gas or water line, however clients do come into the main house to use the bathroom, and it would be impossible to operate any 9-5 business without access to a bathroom. In other words, the separate structure could not stand on its own and operate the business without the primary home structure being functional as well, which requires heat and water.

What do you think? Is it possible this logic could stand up against an audit?

ThomasM125

They main problem with your argument is that you can only take a home office deduction for space that is used regularly and exclusively for your business. That is clearly not applicable to the space in your house, so the IRS may not accept your argument.

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