Car Expenses for Home Office Workers - What's Deductible?

When you leave your home office and climb into your car, it's a good idea to know whether or not the trip will be deductible so you can record the mileage in your expense log. Generally, commuting between home and a place of business is considered personal and nondeductible, while transportation from one place of business to another is deductible. However, if you go from your home office to the office supply store, for example, the trip might fall under both the general categories, so special rules apply.

When Home Office Expenses Are Deductible

First, if your home office qualifies as your "principal place of business," you can deduct daily transportation expenses incurred in going between your home and another business location in the same trade or business, regardless of whether the other business location is regular or temporary, and regardless of the distance. So if your home office qualifies as your principal place of business, and the primary purpose of your trip to the office supply store is to buy something for your home-based business, the trip is deductible. This is a great extra benefit for the legion of home-based business owners who can take advantage of the new easier home-office deduction rules.

When Home Office Expenses Are Not Deductible

Regular business locations outside the home

Perhaps your home office does not qualify as your principal place of business, and you have one or more regular business locations outside the home. In this case, transportation between your residence and the regular work locations is considered nondeductible personal commuting. On the other hand, the IRS allows you to deduct daily transportation expenses in going between your home and temporary business locations in the same trade or business, regardless of the distance.

Now you have to determine the difference between a "regular" work location and a "temporary" one — something that is not always easy to do. According to the IRS, you may be considered to be working or performing services at a particular location on a regular basis whether or not you are there every week or on a fixed schedule. In contrast, a temporary place of business, according to the IRS, is any location at which you perform services on an irregular or short-term basis. For example, if a doctor leaves from home and pays daily visits to a patient at the patient's home for a short period while the patient is sick, the transportation is deductible.

Before you get too creative with these rules concerning temporary work locations, you should read this warning from the IRS:

If it is determined upon examination that there is a clear pattern of abuse by the taxpayer in claiming a business expense deduction for daily transportation expenses paid or incurred in going between the taxpayer's residence and asserted temporary work locations without proof of a valid business purpose, the Service will disallow any deduction for such expenses and impose appropriate penalties (Rev. Rule. 90-23).

Since places like the office supply store are commonly paid regular visits, it's best to be cautious here.

No regular business locations outside the home

If your home office is not your principal place of business, and if you have no regular work locations outside your home, then you cannot deduct the cost of transportation between your home and any temporary work locations within the metropolitan area where you live. However, you can deduct daily transportation expenses incurred in going between your home and a temporary business location outside the metropolitan area where you live and normally work. So, if instead of going to the office supply store, you take a day-trip from home to a near-by city to attend a business seminar, the transportation to and from the seminar is deductible.

The New Home Office Deduction Rules

You can see that the deductibility of your car expenses is greatly affected by whether your home office qualifies as your principal place of business. The Taxpayer Relief Act of 1997 expands the deductibility of home offices, effective for 1999 and later. The new law says a home office will qualify as a principal place of business if it is the only place used by the taxpayer to conduct administrative or management activities essential to the taxpayer's business, and its use is regular and exclusive.

What You Need to Show

To deduct local business use of your car you must be able to prove the following:
The amount expended if you use actual costs in computing your car expenses,
the mileage for each business use and the total miles you drove your car during the year,
the date of the expense or use, and the business purpose of the expense or use,unless it is clear

from the surrounding circumstances.

Whether you are using the actual expense method or the standard mileage allowance you still need to determine your allowable business mileage and total mileage for the year.