Home Office Setup: Deducting Commute Time

The Internal Revenue Service (IRS) does not allow deductions for commuting mileage as a business expense. However, there are exceptions to this rule. If you have a home office that qualifies as your main place of business, you can deduct travel expenses between your home office and other work locations. To qualify, your home office must be where you earn most of your income or perform daily administrative or managerial tasks. Additionally, if you are travelling between two job sites or work locations, these trips are considered work-related travel and are deductible.

Commuting expenses are not deductible

Commuting expenses are generally not tax-deductible. The Internal Revenue Service (IRS) considers these personal expenses, necessary for employees and business owners alike to get to work. Commuting is understood by the tax code to be a cost of doing business.

Commuting expenses include the costs of driving a car, riding a bike, or taking public transportation to and from work. These costs are not deductible, even if you work at home or your job is more than 100 miles away.

However, there are some exceptions where commuting costs may be deductible:

• Home office as the principal place of business: If your home is your principal place of business, you can deduct travel expenses between your home and other work locations. To establish this, you must show that your home is your only or primary place of business and that you use it regularly and exclusively for administrative or management activities.
• Travelling between workplaces: If you travel between two job sites or work locations, these trips are considered work-related travel, not commuting, and are deductible. However, if you go home between jobs, the travel is no longer tax-deductible.
• Temporary distant worksite: If you are required to work at a temporary work site outside your metropolitan area, you can deduct daily travel costs for a worksite that is only for a short duration, typically less than a year.

It is important to note that the IRS has specific rules and requirements for each of these exceptions, and it is always recommended to consult a tax professional for guidance on your specific situation.

Exceptions to the rule

There are a few exceptions to the rule that commuting expenses are not tax-deductible. Here are the circumstances under which you may be able to deduct your commute from your taxes:

• Having a qualifying home office: If your home office is your principal place of business, you may be able to deduct the cost of trips between your home office and another business location. To qualify as your principal place of business, your home office must be where you earn most of your income or perform the majority of your work tasks, such as daily administrative or managerial tasks.
• Travelling between workplaces: If you are travelling between two job sites or work locations, these trips are considered work-related travel, not commuting, and may be tax-deductible. However, if you go home in between jobs, the travel is no longer tax-deductible.
• Temporary distant worksite: If you are travelling from your home to a temporary work site outside the metropolitan area where you live and normally work, you may be able to deduct these expenses. This exception exists because it is unreasonable for a business owner to move permanently to a worksite for a temporary job.
• Travelling between a temporary work location and a second job: If you have a second job and travel between it and a temporary work location, you may be able to deduct these commuting expenses. However, commuting from home to your second job on a day off from your main job is not deductible.

Home office as the principal place of business

To qualify as a principal place of business, a home office must meet two main conditions:

• The area of the home designated as the place of business must be used only for business purposes and must be used regularly. This could include bookkeeping, making phone calls, or other office duties.
• There must be no other location where the same tasks are performed. However, it is possible to do some administrative or management activities outside the home, for example, in your car.

If you are an employee, additional criteria must be met:

• The home office must be used for the convenience of the employer, not the employee.
• The employee must not rent any part of their home to their employer and use the rented portion to perform services for that employer.

If you work from home and your home is your only business location, then your home is your principal place of business. However, if you have several locations from which you do business, your home office can only qualify as your principal place of business if it meets the criteria outlined above.

The IRS has two tests to determine whether a home office is considered a principal place of business:

• The relative importance of the activities carried out in the area.
• The amount of time spent at each place where business is conducted.

If you can prove that you conduct regular work, administrative, or management activities in your home office, you may qualify for tax deductions. These deductions can include portions of rent or mortgage payments, and a percentage of utility costs that reflect the scope of the area dedicated to business usage.

Travelling between workplaces

Travelling between two job sites or work locations is considered work-related travel, not commuting. For example, if you travel between your day job and a night job, you can claim these expenses as travel, not commuting. However, if you go from your day job to your home and then to your second job, the travel is not tax-deductible.

If you have two different workplaces, you may be able to claim a deduction for the miles you commute between the work sites. The Internal Revenue Service (IRS) allows you to take this deduction whether you work for two employers or commute between two sites for the same employer. However, specific rules apply, and you must itemize to take advantage of the deduction.

You are only allowed to count the mileage between your first and second jobs. The mileage from your home to your first job or from your second job to your home is not deductible. For example, if your two jobs are 25 miles apart, you can only claim the 25 miles you drive between your two workplaces.

The IRS also has a same-day requirement. You must work at both jobs on the same day. If you have the day off from your first job, you cannot deduct the costs of commuting to your second job. If you go home or run personal errands between leaving your first workplace and reporting to your second job, the IRS only permits you to claim the miles you would have driven if you had gone directly from your first job to your second place of work.

Each year, the IRS issues a standard rate for taxpayers to use when deducting mileage. Alternatively, the IRS permits you to deduct the actual operating expenses such as gasoline and oil instead of the mileage.

Temporary distant worksite

The IRS defines a temporary work location as a place where a work assignment is expected to last less than a year, and the assignment actually does last less than a year. If you travel from your home to a temporary work location, you may be able to deduct the cost of transportation as a business expense.

However, there are certain conditions that must be met for this deduction to apply. Firstly, the temporary work location must be outside the metropolitan area where you live and normally work. Secondly, you must have a principal place of business, which could be a home office or another regular workplace. If you do not have a principal place of business, you can only deduct transportation expenses to a temporary work location if it is outside your metropolitan area.

It is important to note that if the assignment changes and is expected to last more than a year, the transportation expenses will no longer be deductible. This switch happens as soon as you become aware that the assignment will last more than a year, even if it is still within the one-year mark.

To determine if your home office qualifies as your principal place of business, you must meet two criteria. Firstly, the location in your home must be used regularly and exclusively for performing business and administrative functions. Secondly, there must be no other location where you spend more time on these functions.

If you are unsure whether your temporary work location transportation expenses are deductible, it is best to consult a tax professional for guidance.

Frequently asked questions