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Employee Use of a Home Computer

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On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.

Employee Use of a Home Computer
If a taxpayer purchases a home computer for use in their work as an employee, they can claim a depreciation deduction if:

1. Use of the home computer is for the convenience of the employer (that is, the taxpayer is required to use a computer on the job and the taxpayer's employer does not provide the employee with a computer), and

2. Use of the home computer is required as a condition of the taxpayer's employment. To satisfy this requirement, there must be a clear showing that the employee cannot perform properly the duties of employment without it.

50% Rule - If the taxpayer meets the two tests above and also uses their home computer more than 50% in their work, they can claim an accelerated depreciation deduction and can utilize the Section 179 deduction to write off the computer in the year of purchase. On the other hand, if they do not use the home computer more than 50% in their work, they must depreciate the computer using the straight-line method and cannot take a Section 179 expense deduction.

Computer used in home office - The 50% rule does not apply to the taxpayer's computer if part of the taxpayer's home is treated as a regular business establishment and the taxpayer uses the computer exclusively in that part of the home.

Nonemployee use of a home computer - A taxpayer can deduct depreciation on the home computer to the extent it is used to produce income (for example, managing investments that produce taxable income). However, the time the computer is used to manage investments does not count as business-use time for purposes of the 50% rule and the determination of the depreciation method.

Reporting and Recordkeeping - The IRS requires that you maintain records to prove your percentage of business use. The actual deduction is claimed on Schedule A under “Job Expenses and Certain Miscellaneous Deductions.” The deductions in this category must be reduced by 2% of adjusted gross income.

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