Tax alert! The IRS has a surprise for home-office workers: a lengthy new tax form for calculating the home-office deduction - includes related article on tax tips

Home Office Computing, Dec, 1991 by Linda Stern

When you are depreciating your house, the form describes exactly how you separate the home's land value from its building value: Only a percentage of the latter is deductible.

And this is how the new form may save you money: It allocates home-mortgage interest and real estate taxes (which are deductible even if you don't have a home office) between your personal income taxes and your business taxes. Deducting as much of these expenses as possible from your business makes sense; there the deductions offset the 15.3 percent self-employment tax as well as the income tax. While this is a deduction you've always been allowed to take, many people have erroneously taken their mortgage-interest and property-tax deductions against their personal taxes, not realizing that classifying them properly can cut their tax liability.

Finally, all the information you plug into Form 8829 coalesces into line 34, "Allowable expenses for business use of your home." That figure gets transferred to your Schedule C, line 30. The IRS will be able to quickly see how big your deduction is.

WHEN NOT TO TAKE THE HOME-OFFICE

DEDUCTION

There is one situation in which it is not advantageous to take the full deduction. That's for homeowners who intend to sell their homes while the home office is in use. According to IRS rules and tax law, if you have depreciated a portion of your home as a business expense, and you then sell your house for a gain, you have to pay a capital-gains tax on that portion of the home that you depreciated. The IRS calls that "recapture," and it means you aren't allowed to delay those taxes by rolling over the whole gain on your home into your new house, as you would if it were strictly a residence and not a business.

This doesn't affect renters. If you rent your home, you are in the clearest position to benefit from the home-office deduction and can continue to deduct rent, utilities, and insurance until the day you move out of your house or apartment.

If you are a homeowner intending to sell your home, there are two ways to go: You can continue to take deductions for utilities, mortgage interest, and taxes but stop depreciating the house. Or you can stop using your home office as an exclusive and principal place of business and give up the deductions altogether. For example, you could put in a sofa bed and invite my relatives for a visit. My son wants his room back.

LINDA STERN, HOME-OFFICE COMPUTING's financial columnist, has takken the home-office deduction for six years.