In this installment of Ask the Tax Expert, a self-employed real estate agent asks about the benefits of having a home office. Along with the work benefits, this can also lead to a sizable deduction if you follow the IRS rules and requirements.
Question: I am a freelance real estate salesperson. My real estate office is approximately 3.3 miles away from my home in Brooklyn. I do not have a home office since I conduct most of my real estate business at the branch office. If I travel to the office and return home, do I deduct 6.6 miles or 3.3 miles or none? And what if I go from the office to visit a client 2 miles away and then return home? Should I have a home office?
-William in Brooklyn, NY
Should Self-Employed Workers Have a Home Office?
Stephen Fishman: Yes, you should get a home office. Without a tax deductible home office, you are not allowed to deduct your travel to and from home to your outside office in Brooklyn. It is considered personal commuting, which is never deductible.
On the other hand, if you have a home office which qualifies as a principal place of business for your real estate activity, traveling to and from your home to your outside office would not be considered commuting and would be deductible. You’d deduct the whole round trip—6.6 miles. This is one of the greatest benefits of having a home office.
It is not difficult for you to establish a home office that qualifies as a principal place of business for your real estate activity. You just have to have a place in your home that you use regularly (at least a few hours a week) and exclusively for your real estate business. It need not be the place where you earn most of your income. You can do administrative work, marketing, continuing education and other real estate-related activities from your home office.
Whether or not you have a home office, you can always deduct travel from an outside office to another work location. For example, you can deduct travel from your outside office to visit a client and then back to your office. But you can’t deduct travel back to your home if you don’t have a home office.
Question: I visit my sister in a 24/7 nursing group home a few times per week. It is not really an optional thing because I deliver some food and medications almost every time I go. The trip is at least 55 miles per visit. Is this travel deductible?
-Rich in Grand Rapids, MI
Stephen Fishman: This travel could be deductible if your sister qualifies as your dependent for tax purposes. For this to be the case, you must provide over half of her support during the year. She could also qualify as your dependent if you and one or more other people (your siblings or parents, for example) are paying more than half of her living expenses. If she is not your dependent, there is no deduction.
If she is your dependent, the cost of driving to her nursing home could be deductible as a medical expense. To take this deduction, you must itemize your personal deductions on Schedule A of your tax return, instead of taking the standard deduction.
Also, you may deduct your medical expenses only to the extent they exceed 10 percent of your annual adjusted gross income (but, if you’re over 65, the threshold is 7.5 percent of AGI through 2017). Thus, the higher your income, the less you can deduct. But, most types of medical bills you incur during the year can be included in the deduction—so keep track of all of them, not just your medical-related driving.
Medical-related driving costs can be deducted in one of two ways: using your actual expenses, or the standard medical mileage rate. If you use the actual expense method, you can only the deduct the cost of gas and oil. You cannot include depreciation, insurance, general repair, or maintenance expenses. If you use the standard medical mileage rate, you may deduct 24 cents per mile. No matter which method you use, you can also include parking fees and tolls.
For more details on the medical expense deduction, see IRS Publication 502, Medical and Dental Expenses.
Our resident small business tax expert, Stephen Fishman, answers your small business tax questions. Have a tax question for Stephen? Submit it here.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.