You Be The Tax Judge: Can You Write Off a Home Office Makeover?

Working from home has its perks. No commute, easy access to the coffee pot, and the freedom to make your workspace your own. But what happens when making that workspace your own involves a little home renovation? Can you deduct the cost?

That’s the question at the heart of a dispute involving a California couple who made several improvements to their home office.

In 2008, Jean Marie and Yves Raymond Fontayne both worked for Vitesse Semiconductor Sales Corp. Yves was a full-time employee throughout the year, while Jean Marie initially worked part-time as an independent contractor, performing financial audits for the company. The couple had a three-year-old child, and working from home allowed Jean Marie to balance her professional responsibilities with caring for their child.

Her employment circumstances changed in July 2008. After her supervisor retired, Jean Marie was told she would need to become a full-time employee or lose her contract. She made the switch that month. Her employer provided office space and required her to work on-site at least two days per week. At her request, she was allowed to work from home up to three days per week.

Later that year, the couple undertook a series of renovations. They moved a wall about 14 inches into their living room to expand the home office, replaced the carpet, installed a safe in a closet, and added underfloor heating and a programmable thermostat. Other projects included installing a central vacuum system and retiling a bathroom.

Some of the work fixed damage done along the way. For example, Yves damaged a wall while removing bookcases, and the wall was later replaced. Other changes were intended to make the space more comfortable and functional.

The couple paid a contractor $10,500 in December 2008 for renovation work, and the receipts were dated November and December—after Jean Marie had become a full-time employee.

On their federal income tax return, the Fontaynes reported $16,501 in direct repairs and maintenance expenses and an additional $6,654 in indirect repairs and maintenance expenses as part of their home-office calculation. In total, they claimed a home-office deduction of $24,728. The couple also claimed that 554 square feet of their approximately 3,100-square-foot home was used for business, or nearly 18%.

The IRS challenged both the expenses and the amount of space claimed for business use. The agency questioned whether the renovations qualified as deductible business expenses or were instead capital improvements to the home. It also disputed the size of the home office, with an examiner estimating the space at just 99 square feet—considerably less than the 554 square feet the couple claimed.

The dispute eventually landed in Tax Court.