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Can I get any kind of tax deduction for paying rent on office space that is entirely in the service of my employer?

Let me explain: I work remotely. My company is in California, but I presently live in New York. I haven't adjusted well to working at home, so I am looking into renting a small private office. My company will not pay for it. I wasn't able to claim a home office deduction this year because my home office is my living room, and the living room can't be used strictly for work.

I can't seem to find any info directly pertaining to this situation, because I'm looking at renting actual office space as opposed to using my home, and because I am a salaried employee instead of a business owner.

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    Salaried employees generally cannot deduct expenses like the ones you want to claim unless the employer requires them to incur the expenses as a condition of the job. – Dilip Sarwate Apr 11 '14 at 4:15
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    Bizarre trivia: in Popov v. IRS, the 9th Circuit overruled the Tax Court and let a professional violinist use the home office deduction for a living room in a 1 bedroom apartment that taxpayers said was dedicated entirely to music practice and in which their daughter was not allowed to play. But as a practical matter, yes, the IRS looks skeptically at home office deductions. But it's technically possible, if you don't use the living room for anything else. – NL7 Apr 11 '14 at 14:34
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I disagree with BrenBran, I don't think this is qualified as unreimbursed employee expense.

For it to qualify, it has to be ordinary and necessary, and specifically - necessary for your employer. This is not the case for you, as there's no such necessity. From employer's perspective, you can work from your home just as well. In fact, the expense is your personal, as it is your choice, not "unreimbursed employee expense" since your employer didn't even ask you to do it.

You should clarify this with a licensed tax adviser (EA/CPA licensed in New York).

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    +1 I agree that this does not sound like an unreimbursed employee expense since it is not necessary for the employer. In fact, the employer may well be refusing to reimburse the employee for the expense in order to avoid any imputation of having established a nexus in NY State. – Dilip Sarwate Apr 11 '14 at 13:24
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    Why do you think necessary means "necessary for your employer"? Pub 529 defines necessary as "appropriate and helpful to your business" and says that it "does not have to be required to be considered necessary." I think you could definitely make the argument for this being necessary, but of course you should have a tax professional to agree with that before claiming it. – Ben Miller - Reinstate Monica Apr 11 '14 at 14:16
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    @BenMiller whose business is your business? It doesn't belong to you, it belongs to the employer. You just work there. – littleadv Apr 11 '14 at 16:05
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    @littleadv The Pub is written to the employee, not the business owner. This is about employee expenses, after all. An office is ordinary, appropriate, and helpful for hardware design. It might not be required, but that is not a requirement. Also, it doesn't make sense that he could deduct a home office, but not an external office. – Ben Miller - Reinstate Monica Apr 11 '14 at 16:15
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    @BenMiller and by the same logic, any salaried telecommuter could claim a home office deduction. There is a difference between something being done for the convenience of the employer and something done for personal reasons. If the OP is telecommuting (across state lines) and declining to use the office space offered to him in CA because he prefers living in NY, he can't claim the deduction; but if this is for the convenience of the employer "We will pay you wages but you must work from home because we have no office to provide you" that is a different matter. – Dilip Sarwate Apr 11 '14 at 18:36
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According to this post on TurboTax forums, you could deduct it as an "Unreimbursed Employee" expense.

This would seem consistent with the IRS Guidelines on such deductions:

An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense does not have to be required to be considered necessary.

Office rent is not listed explicitly among the examples of deductible unreimbursed employee expenses, but this doesn't mean it's not allowed. Of course you should check with a tax professional if you want to be sure.

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  • But the Guidelines that you refer to also list typical expenses that could be included in Unreimbursed Employee Expense in which home office is included but rental of office space elsewhere is not. – Dilip Sarwate Apr 11 '14 at 4:20
  • @DilipSarwate: That's true, although that doesn't mean it's not allowed. I edited my answer to include that info though. – BrenBarn Apr 11 '14 at 4:23
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If you are a telecommuter and in good terms with your employer, then all you need is contact your employer and explain your situation. Ask them for a short letter that indicates:

"1. they require you to work from a privately rented office (or from a home office for those who prefer working from home), 2. this is one of the terms of your employment, and, 3. they will not reimburse you for this expense."

With this letter in your hand, you satisify both the "convenience of employer" test AND the deduction of the rent for your private office as a unreimbursed employee expense.

The IRS cannot expect your employer to open an office branch in your city just for your sake, nor can they expect you to commute to your employer's city for work, which is an impossiblity considering the distance. Additionally, the IRS cannot "force" telecommuters to work from home.

The key is to get a letter from your employer. You'd be surprised how easily they are willing to write such letter for you.

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    This is what is generally called "tax fraud". Claiming deductions using fraudulent documentation is a felony. Just saying. – littleadv Sep 24 '14 at 5:32
  • What part of this is "fraud"? Does the IRS expect the employee to commute hundreds of miles to his employer's office in another city every day? No. Does the IRS expect the employer to open an office in the employee's city? No. Or does the IRS exepct the employee to work in his own city, but in a Starbucks? No. Then there remains either the option of working from a "home office" or from a "private office". There is no IRS code that indicates IRS "prefers" a home office over a private office. – TelecommuterProgrammer Sep 27 '14 at 23:05
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    The part where you "Ask them for a short letter that indicates". – littleadv Sep 27 '14 at 23:05
  • Asking for a letter does not constitute fraud. IRS sometimes REQUIRES such letter from the employer. If the employer is not reimbursing office expenses for a telecommuter (the truth) AND if it is more convenient for the employer to have the employee rent his own office or use a home office as opposed to the employer opening a remote satellite office (the truth) AND if the employer requires this office as a term of employment as opposed to having the employee working from his living room or Starbucks (the truth), then these could be stated in a letter. I fail to see any fraud in this. – TelecommuterProgrammer Oct 1 '14 at 19:13
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    Asking for a letter saying something that is not true is most definitely a tax fraud. If the employer "suddenly" decided that he can't live without a remote office after the employee asked for a letter to send to IRS - the person signing this letter may very likely end up in jail, together with that employee. If not in jail - then most definitely unemployed, once the employee is audited. – littleadv Oct 1 '14 at 21:08

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