To deduct expenses related to the part of your home used for business, you must meet specific requirements. Even then, your deduction may be limited.
You must use part of your home:
- Exclusively and regularly as your principal place of business,
- Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business,
- In the case of a separate structure which isn't attached to your home, exclusively and regularly in connection with your trade or business,
- On a regular basis for storage of inventory or product samples for use in your trade or business of selling products if your home is the only fixed location of the trade or business,
- For rental use, or
- As a daycare facility.
Note: You don't have to meet the exclusive use test if you satisfy the rules that apply to storage, rental, or daycare use.
A safe harbor method, as announced in Revenue Procedure 2013-13, is available to qualifying taxpayers. They can claim a prescribed rate of $5 per square foot (up to a maximum of 300 square feet) directly on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship), by entering the square footage of the home and square footage of the office in the applicable boxes to indicate their election to use the safe harbor option.
Note: You may not use the safe harbor method for rental use of your home.
Taxpayers who don't choose the safe harbor option, will continue to use Form 8829, Expenses for Business Use of Your Home to compute the expense allowable as a deduction on Schedule C (Form 1040). For more information, see Home Office Deduction, Simplified Option for Home Office Deduction, and FAQs – Simplified Method for Home Office Deduction.
If you use your home in your farming business, report your expenses on Schedule F (Form 1040). Partners report their unreimbursed partnership expenses on Schedule E (Form 1040). If you are a statutory employee (box 13 of Form W-2 checked), report your expenses using the same rules as self-employed persons on Schedule C (Form 1040).