The Client Who Wants the Home Office
Marcus is a salaried employee who also does freelance consulting on the side. He works from a dedicated 150 sq ft room in his 2,000 sq ft home. His employer requires him to be in the office three days a week; he consults from home the other two weekdays and most weekends. Home costs total $24,000/year (mortgage interest, utilities, insurance, repairs). His freelance income is $30,000; his salary is $110,000. He wants to deduct the full 7.5% share of home costs ($1,800) against his salary as well, arguing 'the room is used for work, so it's all business.' He also asks whether he can claim the room even in months he does not consult.
1. Can Marcus deduct the home office expenses against his salary? Why or why not?
Read the worked answer
No - not against the salary. The home office is used for his freelance activity, not as a condition of his salaried employment (his employer provides an office and does not require him to work from home). Employee home-office deductions are tightly restricted and generally unavailable when a suitable workplace is provided by the employer.
So the $1,800 (7.5% × $24,000) can only be considered against the freelance income of $30,000, and only to the extent the space is used exclusively and regularly for that activity. The salary is irrelevant to this deduction.
2. How should the 7.5% allocation and the 'months I don't consult' question be handled?
Read the worked answer
Two separate tests:
- Exclusive and regular use. A dedicated 150 sq ft room passes the exclusivity test if nothing personal happens there. If it doubles as a guest room, the deduction fails entirely - not partially.
- Time apportionment. The space must be used regularly. If Marcus consults only two weekdays plus weekends, that is regular enough for the business-use share, but he should not claim a full-time allocation if the room sits idle for extended periods. A defensible approach is to allocate the 7.5% area share only for the portion of the year the room was actually used for consulting, and document the usage pattern.
Practical answer: claim 7.5% of home costs against freelance income only, capped at that income, with a usage log. Do not claim in months with no consulting activity - that undercuts 'regular use.'