Topic Number 509 - Business Use of Home
Whether you're self-employed or a partner, you may be able to deduct certain expenses for the part of your home that 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;
- A separate structure that's not attached to your home used exclusively and regularly in connection with your trade or business;
- On a regular basis for storage of inventory or product samples used in your trade or business of selling products at retail or wholesale;
- For rental use; or
- As a daycare facility.
If the exclusive use requirement applies, you can't deduct business expenses for any part of your home that you use both for personal and business purposes. For example, if you're 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. 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 have no other fixed location where you conduct substantial administrative or management activities for that trade or business.
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 daycare services; exclusive use isn't 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. In general, you may not deduct expenses for the parts of your home not used for business, for example, lawn care or painting a room not used for business.
Regular Method - You compute the business use of home deduction by dividing expenses of operating the home between personal and business use. You may deduct direct business expenses in full, and may allocate the indirect total expenses of the home to the percentage of the home floor space used for business. A qualified daycare provider who doesn't use his or her home exclusively for business purposes, however, 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.
Simplified Option - While taxpayers can still figure the deduction using the regular method, many taxpayers may find the optional safe harbor method less burdensome. Revenue Procedure 2013-13 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 indicates the taxpayer's election to use the safe harbor option by making two entries directly on the Schedule C for the square footage of the home and the square footage of the office. Deductions attributable to the home that are otherwise allowable without regard to business use (such as qualified residence interest, property taxes, and casualty losses from Federally declared disasters) are allowed in full on Form 1040, Schedule A.pdf, Itemized Deductions. For more information, see Home Office Deduction, Simplified Option for Home Office Deduction, and FAQs – Simplified Method for Home Office Deduction.
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's no carryover provision under the safe harbor method, but you may elect into and out of the safe harbor method in any given year.
In the Farming Business or a Partner - If you're in the farming business and file Form 1040, Schedule F.pdf, Profit or Loss From Farming, or a partner and you're using actual expenses, use the "Worksheet to Figure the Deduction for Business Use of Your Home" to figure your deduction. If you're using the simplified method to figure the deduction, use the "Simplified Method Worksheet" to figure your deduction. Both worksheets are in Publication 587. Farmers claim their expenses on Form 1040, Schedule F.pdf. Partners generally claim their unreimbursed partnership expenses on Form 1040, Schedule E.pdf, Supplemental Income and Loss.
Publication 587 has detailed information on rules for the business use of your home, including how to determine whether your home office qualifies as your principal place of business.