Q: I moonlight as a consultant and use one room in my home as my office. I have read that to be able to take a home office deduction, my room has to be used regularly and exclusively for business. Exactly what is meant by exclusive? Can I, for example, watch a football game on Sunday in that room, since that’s where my TV set is?
A. I would move the TV out of that room. The IRS rules are very strict. Exclusive means exclusive, and unless you are a sportswriter and watching that game is part of your job, you are not complying with the IRS tax code.
As of tax returns beginning in 2013, the IRS has adopted a simplified option to claim the home deduction. According to IRS Tax Tip 2014-36, instead of claiming actual expenses, “you can now multiply the allowable square footage of your office by a prescribed rate of $5. The maximum footage allowed is 300 square feet, and the deduction limit using this method is $1,500 per year.”
This is confusing even to me and unless you have a good background in mathematics, I would consult a tax adviser for assistance.
There is, however, a very recent tax court opinion, that may be helpful. Lauren Miller lives in New York but was hired by a California company. She used her apartment for the company’s New York office. She lived in a 700-square-foot studio apartment. According to the facts of the case, although she had a dedicated office space, she had to pass through that space to get to her bedroom.
The court was satisfied that the apartment was the principal place of business and that Miller was obligated to use the space as an office for the convenience and benefit of the company.
In this case, the court made the following decision: “although (Miller) admitted that she used portions of the office space for nonbusiness purposes, we find that her personal use of the space was de minimis (too trivial or minor) and wholly attributable to the practicalities of living in a studio apartment of such modest dimensions.”
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So if you live in a small, confined apartment, you may be able to claim the deduction. For more information, go the IRS website and find Publication 587, “Business Use of Your Home.”
Q: We have a grandson who is always going to struggle to survive. Our home is paid for, as is other property we own. My wife and I are in our 60s and retired. Is there a way we can make sure he gets the house and some funds for property taxes?
We are worried about the Medicare/Medicaid “look-back” rule, which applies to some asset transfers (gifts). We had the house partially built 30-plus years ago, and I finished it up on the inside. Also, we just did some remodeling. The house is appraised at about $55,000.
I have seen information about trusts, but even some trusts are not a sure thing and there are dishonest folks doing those as well. We thought of life insurance for taxes and bills and things of that nature.
Would it work to sell it to him over three or four years and then forgive the debt? Would that keep Medicaid away in the event one of us did fall ill?
A: I commend you for your concerns. Your idea of selling the property to your grandson may serve your objective of avoiding the asset being counted for purposes of Medicaid, because there are special rules that disregard primary residence as a countable asset for Medicaid. I do not believe your situation requires what is known as a special needs trust. But this is an area outside of my realm, so I strongly suggest you contact an elder-law attorney.
Benny L. Kass is a practicing attorney in Washington and Maryland. No legal relationship is created by this column; [email protected].