Exclusive Use Test
To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. You must meet the exclusive use test in order for you to claim expenses for the business use of your home.
Home Office Deduction Definition
If you operate your business from your home, using a room or other space as an office or area to assemble or prepare items for sale, you may be able to deduct expenses such as utilities, insurance, repairs, and depreciation allocated to your business use of the area.
Collectively, these expenses are deducted as a single write-off, called “The Home Office Deduction”.
Exclusive Use Requirement
To qualify for a home business deduction you must meet the exclusive use test:
- You must use a specific area of your home only for your trade or business; meeting with patients, clients, or customers in the normal course of your business for example.
- Your home will qualify as your principal place of business if you spend most of your working time there and most of your business income is attributable to your activities there.
There are two exceptions to this exclusive use rule for the storage of inventory and for daycare facilities.
The area used for business can be a room or other separately identifiable space. The space doesn’t have to be marked off by a permanent partition. You need to be sure that you do not mix personal used items mixed with business unit items.
Exclusive use example 1: If you perform tax services and use a room in your house as an office, you wouldn’t want to have a bookcase in your office comprised of tax related literature mixed with romance novels.
The area must be used for business purposes ONLY.
Exclusive use example 2: You may pay your bills once a month on your dining room table, but you also eat breakfast and dinner on the table. The dining room table is not used “exclusively” for business purposes due to your personal use and will not qualify for the home office
The area you use must be set up for doing business. You will not qualify for the exclusive definition if you, for example, have an office and also use it to do investment work, play videogames on your computer, or manage your finances.
Exclusive Use Exceptions
Note that there are two exceptions to the exclusive use test. You do not have to meet the exclusive use test if either of the following applies:
- 1. You use part of your home for the storage of inventory or product samples.
To learn more about the exception for the storage of inventory, read IRS publication 587.
- 2. You use part of your home as a daycare facility. This is discussed on the main home business page.
Storage of Inventory or Product Samples
If you use part of your home for storage of inventory or product samples, you can claim expenses for the business use of your home without meeting the exclusive use test. However, you must meet all the following tests:
- You sell products at wholesale or retail as your trade or business.
- You keep the inventory or product samples in your home for use in your trade or business.
- Your home is the only fixed location of your trade or business.
- You use the storage space on a regular basis.
- The space you use is a separately identifiable space suitable for storage.
Exclusive use example 3: Karl Moore’s home is the only fixed location of his business of selling mechanic’s tools at retail. He regularly uses half of his basement for storage of inventory and product samples. He sometimes uses the area for personal purposes. The expenses for the storage space are deductible even though he does not use this part of his basement exclusively for business.