Whether you are self-employed or are an employee, you may be able to deduct certain expenses for the part of your home you use for business.
To deduct expenses for business use of the home, you must use part of your home as one of the following:
- Exclusively and regularly as your principal place of business for your trade or business
- Exclusively and regularly as a place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or
- A separate structure used exclusively and regularly in connection with your trade or business that is not attached to your home
- On a regular basis for certain storage use
- For rental use
- As a daycare facility
If the exclusive-use requirement applies, you cannot deduct business expenses for any part of your home that you use both for personal and business purposes. For example, if you are an attorney and use the den of your home to write legal briefs and for personal purposes, you may not deduct any business use of your home expenses. Further, under the principal place of business test, you must determine that your home is the principal place of your trade or business after considering where you perform your most important business activities and where you spend most of your business activity time, in order to deduct expenses for the business use of your home. Additionally, a portion of your home may qualify as your principal place of business if you use it for the administrative or management activities of your trade or business and you have no other fixed location where you conduct substantial administrative and management activities for that trade or business. An employee may only deduct business use of the home expenses when he or she uses the business part of the home regularly and exclusively and for the employer's convenience.
You also may take deductions for business storage purposes when the dwelling unit is the sole fixed location of the business or for regular use of a residence for the provision of day care services; exclusive use is not required in these cases. For more information, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers),
Deductible expenses for business use of your home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs. You may not deduct expenses for lawn care in general or for painting a room not used for business.
Historically, taxpayers have computed the business use of home deduction by allocating the total expenses of the home to the percentage of the home floor space used for business. However, qualified daycare providers who do not use their home exclusively for business purposes must figure the percentage based on the amount of time the applicable portion of the home is used for business. Self-employed taxpayers filing Form 1040, Schedule C (PDF), Profit or Loss From Business (Sole Proprietorship) first compute this deduction on Form 8829 (PDF), Expenses for Business Use of Your Home.
While taxpayers can still figure the deduction in the same manner as before, many taxpayers may find the optional safe harbor method less burdensome. Beginning in 2013, Revenue Procedure 2013-13 (available on IRS.gov) allows qualifying taxpayers to use a prescribed rate of $5 per square foot of the portion of the home used for business (up to a maximum of 300 square feet) to compute the business use of home deduction. Under this safe harbor method, depreciation is treated as zero and the taxpayer claims the deduction directly on Form 1040, Schedule C. Instead of using Form 8829, the taxpayer makes two entries directly on the Schedule C for the square footage of the home and square footage of the office which the taxpayer completes indicating their election to use the safe harbor option. Deductions attributable to the home that are otherwise allowable without regard to business use (such as qualified residence interest, property taxes and casualty losses) are allowed in full on Form 1040, Schedule A (PDF), Itemized Deductions. For more information, see Home Office Deduction and Simplified Option for Home Office Deduction on IRS.gov.
Regardless of the method used to compute the deduction, you may not deduct business expenses in excess of the gross income limitation. Under the regular method for computing the deduction, you may be able to carry forward some of these business expenses to the next year, subject to the gross income limitation for that year. There is no carryover provision under the safe harbor method, but you may elect into and out of the safe harbor method in any given year.
If you are in the farming business or are an employee, use the worksheet in Publication 587 to figure your deduction. As an employee, you must itemize deductions on Form 1040, Schedule A (PDF) to claim expenses for the business use of your home. Farmers claim their expenses on Form 1040, Schedule F (PDF), Profit or Loss From Farming.
Publication 587 has detailed information on rules for the business use of your home, including how to determine if your home office qualifies as your principal place of business.
Page Last Reviewed or Updated: January 14, 2015