how likely is it that having such would trigger an IRS audit of my entire return?
Q.If I have a legitmate home office (meets IRS regs), how likely is it that having such would trigger an IRS audit of my entire return? I think my legal/accountant expenses of complying with an IRS audit might be more than I would gain from claiming a home-office deduction. What do you think?
A.For me, the issue isn't so much getting audited for home office deductions as it is the fact that this "deduction" is really depreciating a portion of your home for business purposes. This has the effect of lowering your basis in the property when you sell, which will trigger higher capital gains taxes unless you roll into a higher value property or qualify for an exclusion (particularly under the new capital gains rules). This issue is moot if the property is rented or you plan on living there for many years more. However, its something to consider if you own and plan on selling in the next 5 years or so. It's sort of a Catch-22 -- it's too risky unless the reward is great, which in turn increases the risk of being audited! The biggest risk, IMHO, is letting an IRS agent loose on your return, bent on justifying the time he has spent with you. This is exactly why I don't claim the home office deduction. It *might* save me a couple of dollars on my taxes, but the (non-billable) hours that would be taken by an IRS "inquiry" would kill my cash flow, not to mention the money I'd have to pay my accountant. Not a fair trade-off, IMHO.
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