People today aren’t using space like they used to. Whether they live in small city apartments where space is at a premium, or whether they’re into the tiny house movement to avoid waste, not everyone lives in a 2000-square foot house anymore. 

This poses a dilemma when it comes to the home office deduction, which stipulates that the office space be used solely for work-related activities.

In a recent court case described in Accounting Today, the IRS challenged a taxpayer’s deduction for the business use of one-third of her New York City studio apartment (of 700 square feet). The taxpayer, Lauren Miller, was a remote worker for a company headquartered in Los Angeles. Her apartment address and apartment landline were listed on the company’s website, and she worked weekdays between 9:00 a.m. and 7:00 p.m., in her apartment. The business did not reimburse any of her office-related expenses.

In her apartment of a single large room divided into three equal sections, Miller set up her office in the only available space. She frequently met with clients in her office space, and kept her desk and bookshelves there. She had to pass through the office to get to her bedroom, and she sometimes had to use it for activities not related to her work.

The Tax Court ruled that because the taxpayer’s company listed her apartment address on its website as its New York office address, and because the taxpayer “testified credibly that she regularly used one-third of her apartment space as an office to conduct BIW business, she met with clients there, and she was expected to be available to work well into the evening,” her deduction was legitimate.