If you qualify to deduct expenses for the business use of your home, you must divide the expenses of operating your home between personal and business use. This section discusses the types of expenses you may have and gives examples and brief explanations of these expenses.

Types of Expenses

The part of a home operating expense you can use to figure your deduction depends on both of the following.

• Whether the expense is direct, indirect, or unrelated.
• The percentage of your home used for business.

The following table describes the types of expenses you may have and the extent to which they are deductible.

Expense	Description	Deductibility
Direct	Expenses only for the business part of your home.	Deductible in full.*
	Examples: Painting or repairs only in the area used for business.	Exception: May be only partially deductible in a day-care facility. See Day-Care Facility, later.
Indirect	Expenses for running your entire home.	Deductible based on the percentage of your home used for business.*
	Examples: Insurance, utilities, and general repairs.
Unrelated	Expenses only for the parts of your home not used for business.	Not deductible.
	Examples: Lawn care or painting a room not used for business.
*Subject to the deduction limit, discussed earlier.

Form 8829 and the deduction worksheet (both illustrated near the end of this publication) have separate columns for direct and indirect expenses.

Expenses related to tax-exempt income. Generally, you cannot deduct expenses that are related to tax-exempt allowances. However, if you receive a tax-exempt parsonage allowance or a tax-exempt military allowance, your expenses for mortgage interest and real estate taxes are deductible under the normal rules. No deduction is allowed for other expenses related to the tax-exempt allowance.

If your housing is provided free of charge and the value of the housing is tax-exempt, you cannot deduct the rental value of any portion of the housing.

Examples of Expenses

Certain expenses are deductible whether or not you use your home for business. If you qualify to claim business use of the home expenses, you can use the business percentage of these expenses to figure your total business use of the home deduction. These expenses include the following.

• Real estate taxes.
• Deductible mortgage interest.
• Casualty losses.

Other expenses are deductible only if you use your home for business. You can use the business percentage of these expenses to figure your total business use of the home deduction. These expenses generally include (but are not limited to) the following.

• Depreciation (covered under Depreciating Your Home, later).
• Insurance.
• Rent.
• Repairs.
• Security system.
• Utilities and services.

Real Estate Taxes

To figure the business part of your real estate taxes, multiply the real estate taxes paid by the percentage of your home used for business.

For more information on the deduction for real estate taxes, see Publication 530, Tax Information for First-Time Homeowners.

Deductible Mortgage Interest

To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. You can include interest on a second mortgage in this computation. If your total mortgage debt is more than $1,000,000 or your home equity debt is more than $100,000, your deduction may be limited. For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction.

Casualty Losses

If you have a casualty loss on your home that you use for business, treat the casualty loss as a direct expense, an indirect expense, or an unrelated expense, depending on the property affected.

1. Direct expense. If the loss is on the portion of the property you use only in your business, use the entire loss to figure the business use of the home deduction.
2. Indirect expense. If the loss is on property you use for both business and personal purposes, use only the business portion to figure the deduction.
3. Unrelated expense. If the loss is on property you do not use in your business, do not use any of the loss to figure the deduction.

If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. If you are an employee, a partner, or you file Schedule F (Form 1040), use the worksheet near the end of this publication. You will also need to get Form 4684, Casualties and Thefts.

For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts.

Insurance

You can deduct the cost of insurance that covers the business part of your home. However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for your tax year. You can deduct the business percentage of the part that applies to the following year in that year.

Rent

If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. To figure your deduction, multiply your rent payments by the percentage of your home used for business.

If you own your home, you cannot deduct the fair rental value of your home. However, see Depreciating Your Home, later.

Repairs

The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. For example, a furnace repair benefits the entire home. If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair.

Repairs keep your home in good working order over its useful life. Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. However, repairs are sometimes treated as a permanent improvement. See Permanent improvements later under Depreciating Your Home.

Security System

If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. You can also take a depreciation deduction for the part of the cost of the security system relating to the business use of your home.

Utilities and Services

Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. However, if you use part of your home for business, you can deduct the business part of these expenses. Generally, the business percentage for utilities is the same as the percentage of your home used for business.

Telephone. The basic local telephone service charge, including taxes, for the first telephone line into your home is a nondeductible personal expense. However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. You can deduct these expenses even if the expenses for the business use of your home do not qualify for the deduction. Deduct these charges separately on the appropriate schedule. Do not include them in your home office deduction.

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