If you are an employee, a partner, or you file Schedule F (Form 1040), use the preceding worksheet to figure your deduction for the business use of your home. The following instructions explain how to complete each part.

If you file Schedule C (Form 1040), use Form 8829 to figure the deductions and attach the form to your return.

Part 1--Part of Your Home Used for Business

Lines 1-3. If you figure the percentage based on area, use lines 1 through 3 to figure the business-use percentage. Enter the percentage on line 3.

You can use any other reasonable method that accurately reflects your business-use percentage. If you operate a day-care facility and you meet the exception to the exclusive use test for part or all of the area you use for business, you must figure the business-use percentage for that area as explained under Day-Care Facility, earlier. If you use another method to figure your business percentage, skip lines 1 and 2 and enter the percentage on line 3.

Part 2--Figure Your Allowable Deduction

Line 4. If you file Schedule F, enter your total gross income from the business use of your home. This would generally be the amount on line 11 of Schedule F.

If you are an employee, enter your total wages from the business use of the home.

Lines 5-7. Enter only amounts that would be deductible whether or not you used your home for business. In other words, these amounts would normally be allowable as itemized deductions on Schedule A (Form 1040). Enter your expenses paid for deductible mortgage interest, real estate taxes, and casualty losses. Include only the part of a casualty loss that exceeds $100 plus 10% of adjusted gross income.

Under column (a), Direct Expenses, enter expenses that benefit only the business part of your home. Under column (b), Indirect Expenses, enter expenses that benefit the entire home. You generally enter 100% of the expense. However, if the business percentage of an indirect expense is different from the percentage on line 3, enter only the business part of the expense on the appropriate line in column (a), and leave that line in column (b) blank.

Lines 9-10. Multiply your total indirect expenses by the business percentage from line 3. Enter the result on line 9. Add this amount to the total direct expenses and enter the total on line 10.

Lines 11-13. Enter any other business expenses that are not attributable to business use of the home on line 11. For employees, examples include travel, supplies, and business telephone expenses. Farmers should generally enter their total farm expenses before deducting office in the home expenses. Do not enter the deduction for one-half of your self-employment tax. Add the expenses on line 11 to the line 10 amount, and enter the total on line 12. Subtract line 12 from line 4, and enter the result on line 13. This is your deduction limit. You use it to determine whether you can deduct any of your other expenses for business use of the home this year. If you cannot, you will carry them over to next year.

If line 13 is zero or less, enter zero. Deduct your expenses for deductible home mortgage interest, real estate taxes, casualty losses, and any business expenses not attributable to use of your home on the appropriate lines of the schedule(s) for Form 1040 as explained earlier under Where To Deduct.

Lines 14-21. On lines 14 through 18, enter your otherwise nondeductible expenses for the business use of your home. These include utilities, insurance, repairs, and maintenance. If you rent, include the amount paid on line 18. If you file Schedule F, include any part of your home mortgage interest that is more than the limits given in Publication 936. (If you are an employee, do not enter any excess home mortgage interest.) In column (a), enter the expenses that benefit only the business part of your home (direct expenses). In column (b), enter the expenses that benefit the entire home (indirect expenses). Multiply line 19, column (b) by the business-use percentage and enter this amount on line 20.

If you claimed a deduction for business use of your home on your 2000 tax return, enter the amount from line 39 of your 2000 worksheet on line 21.

Lines 24-29. On lines 24 through 29, figure your limit on deductions for excess casualty losses and depreciation.

On line 25, figure the excess casualty loss by multiplying the business use percentage from line 3 by the part of casualty losses that would not be allowable if you did not use your home for business ($100 plus 10% of your adjusted gross income).

On line 26, enter the depreciation deduction from Part 3.

If you claimed a deduction for business use of your home on your 2000 tax return, enter on line 27 the amount from line 40 of your 2000 worksheet.

On lines 28 and 29, figure your allowable excess casualty losses and depreciation.

Lines 30-32. On line 30, total all allowable business use of the home deductions.

On line 31, enter the total of the casualty losses shown on lines 10 and 29. Enter the amount from line 31 on line 27 of Form 4684, Section B. See the instructions for Form 4684 for more information on completing that form.

Line 32 is the total (other than casualty losses) allowable as a deduction for business use of your home. If you file Schedule F (Form 1040), enter this amount on line 34 of Schedule F and write "Business Use of Home" on the line beside the entry. Do not add the specific expenses into other line totals of Part II of Schedule F.

If you are an employee, see Where To Deduct, earlier, for information on how to claim the deduction.

Part 3--Depreciation of Your Home

Figure your depreciation deduction on lines 33 through 38. On line 33, enter the smaller of the adjusted basis or the fair market value of the property at the time you first used it for business. Do not adjust this amount for changes in basis or value after that date. Allocate the basis between the land and the building on lines 34 and 35. You cannot depreciate any part of the land. On line 37, enter the correct percentage for the current year from the tables in Publication 946. Multiply this percentage by the business basis to get the depreciation deduction. Enter this figure on lines 38 and 26. Complete and attach Form 4562 to your return if this is the first year you used your home, or an improvement or addition to your home, in business.

Part 4--Carryover of Unallowed Expenses to Next Year

Complete these lines to figure the expenses that must be carried forward to next year.

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