February 1999

Can home computer costs be deducted?

The deductibility of the cost of buying and operating a home computer, including related equipment such as printers, drives, scanners, modems, etc., depends on how you use your computer.

Strictly personal use. As you might guess, you get no tax deduction when you use the computer for entertainment, education, avocation, hobbies, and other personal purposes.

Strictly for your employer's work. You can deduct the operating expenses you pay -- plus depreciation -- if the computer is:
a. required as a condition of your employment, and,
b. used for the convenience of your employer.

However, a computer at home, even if used exclusively for the employer's work, is subject to the so-called 'listed property' deduction-limitation rules (unless you qualify under the 'Office-at-home' rule, explained below). Briefly this means that:
a. you can take accelerated depreciation over six tax years, plus (in the first year you place the computer in service) an expense deduction under a special Code election (plus related operating expenses) for the computer's cost, where the computer is predominately used (more than 50%) for your employer's work -- 50% or less work-related use downgrades your depreciation to straight-line and eliminates any expense election.
b. your allowable deductions must be reduced by 2% of your adjusted gross income.

Investment or income-producing use. You can deduct operating expenses plus depreciation if you use your computer to:
a. produce or collect income (for example, to keep track of your investments) even though the income-producing activity doesn't qualify as a trade or business;
b. manage conserve, or maintain property held for producing income; or
c. determine, contest, pay, or claim a refund of any tax.

The same deduction rules that apply to an employee (above) apply here except that the special depreciation expense deduction previously described, isn't allowed.

Home office business use. Not surprisingly, if you use the computer in an office at your home that qualifies as your 'regular business establishment' you get the maximum deduction. You get the same deduction as the employee, above, but the 2% reduction rule doesn't apply, and the 'listed property' limitation rules don't apply.

Of course, to be assured of any deduction you must provide acceptable proof of use, etc.

Please call us if you would like to discuss the details of your particular circumstances.

Please call us if you would like to discuss the details of your particular circumstances.

Veres & Company
Certified Public Accountants
Freedom Square Office Park
4401 Rockside Road, Suite 406
Independence, Ohio 44131
(216) 524-8422
Fax (216) 524-2624
e-mail: staff@veres.com