Whether you are an employee or self-employed, you may be able to
deduct certain expenses 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 principal 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 use both your home and other locations regularly in the same
trade or business, you must determine which location is your principal
place of business. The two primary factors used to determine your principal
place of business are 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 whether your home is
your principal place of business.
In general, because of the exclusive use rule, you cannot deduct
business expenses for any part of your home that you use for both personal
and business purposes. 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 daycare providers
and for persons storing inventory or product samples used in their business.
If you are an employee, additional rules apply. Even if you meet
the exclusive and regular use tests, you cannot take any deductions for
the business use of your home unless: this use of your home is for the
convenience of your employer and your employer does not pay you rent for
the portion of your home that you use in providing services as an employee.
Some of the deductible business use of the home expenses may include
the business portion of real estate taxes, mortgage interest, casualty
losses, rent, utilities, insurance, depreciation, painting and repairs.
You may not deduct expenses for lawn care or for painting a room not used
for business.
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 your home is less than
your total business expenses, your deduction for certain expenses for the
business use of your home is limited. However, those business expenses
that are not deducted because of the limit can be carried forward as part
of next year's business-use-of-the-home expenses. Publication
587, Business Use of Your Home, has detailed information on
the business use of your home rules. If you are an employee, use the worksheet
in Publication 587 to figure your deductions. As an employee, you must
itemize deductions on Schedule A (Form 1040) to claim expenses for the
business use of your home.
If you are self-employed, use Form
8829 to figure your business use of the home deductions and report
those deductions on Schedule C, (Form 1040). Publications can be downloaded
from this site, or ordered by calling 1-800-829-3676.
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