Whether you are an employee or self employed, you may be able to deduct certain
expenses you have by using a part of your home for business purposes.
To deduct business-use-of-the-home expenses, a part of your home must be used regularly
and exclusively:
- As the principle place of business for any trade or business in which you engage,
- As the place where you meet and deal with your patients, clients, or customers in the
normal course of your trade or business; or
- In connection with your trade or business, if you use a separate structure that is not
attached to your home.
If you have more than one business location, including your home used for a single
trade or business, you must determine which location is your principle place of business.
The two primary factors used to determine your principle place of business is the amount
of time spent in each business location, and the relative importance of the activities
performed at each location. After 1998, where you perform substantial administrative and
management activities will also be considered in determining your principle place of
business.
In general, if you use a part of your home for both personal and business purposes, no
expenses for business use of that part are deductible. For example, if you are an attorney
and use the den of your home to write legal briefs and also for personal purposes, you may
not deduct any business-use-of-your-home expenses.
The only exceptions to the exclusive-business-use rule are for qualified day-care
providers and for the storage of inventory used in the business. Even if you meet the
exclusive and regular use tests, you can not take any deductions for the business use of
your home if you are an employee, unless this use of your home is for the convenience of
your employer.
Some of the deductible expenses may include real estate taxes, mortgage interest,
casualty losses, rent, utilities, insurance, depreciation, painting and repairs. You may
not deduct lawn care or landscaping costs.
The amount you can deduct depends on the percentage of your home used for business. To
figure this percentage, divide the number of square feet used for business by the total
square feet in your home. Or, if the rooms are approximately the same size, divide the
number of rooms used for business by the total number of rooms in your home. You figure
the business portion of your expenses by applying this percentage to the total of each
expense. Qualified day care providers must reduce their percentage to take into account
the time available for personal use of any area not used exclusively for business.
If your gross income from the business use of home is less than your total business
expenses, your deduction for certain expenses for the business use of your home is
limited. However, the nondeductible amount can be carried forward as part of next year's
business-use-of- the-home expenses.
If you are an employee or self employed, you can use the worksheet in Publication 587, Business Use of Your Home, to figure your
deduction. If you are self employed and file Schedule C, you figure your deduction using Form 8829. If you are an employee, you must
itemize your deduction on Schedule A (Form 1040)
to claim expenses for the business use of your home. Publication 587 has detailed
information on the business-use-of your-home deduction. To order publications and forms,
call 1-800-829-3676, or download them from this
web site.
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