Here is part of an article on top 5 red flags for income tax deductions. I think as realtors we should all be careful of claiming a part of our house as a home office.
. Home-Office Deductions
If you are self-employed and use part of your home as an office, you may be able to deduct some of your home expenses, including a portion of your utility bills, insurance and repair costs. The problem is, the requirements for this deduction are very specific and filers may claim it without being eligible, says Greg Rosica, contributing author of the Ernst & Young Tax Guide 2007. As a result, taking a home-office deduction, especially when you're employed by someone other than yourself, may flag your return for more careful inspection.
The deal-breaker for home-office deductions: Even if you work from home regularly, you're out of luck if your employer provides you with an office space. "You can't just set up a home office because you want to," Rosica says. "It needs to be done because your employer wants you to do that, for the convenience of the employer."
If you don't have an office space at work -- say your company has an arrangement with you to do your work remotely -- then a home-office deduction is legit. (Should the IRS want proof of that and it isn't outlined in your contract, a letter from your employer will do.) You are also eligible if you're self-employed and work from home. For more details on claiming this deduction, read our story "Home Office Deductions."
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