After you determine that you meet the tests under Qualifying
for a Deduction, you can begin to figure how much you can
deduct. You will need to figure the percentage of your home used for
business and the limit on the deduction.
To find the business percentage, compare the size of the part of
your home that you use for business to your whole house. Use the
resulting percentage to figure the business part of the expenses for
operating your entire home.
You can use any reasonable method to determine the business
percentage. The following are two commonly used methods for figuring
- Divide the area (length multiplied by the width) used for
business by the total area of your home.
- Divide the number of rooms used for business by the total
number of rooms in your home. You can use this method if the rooms in
your home are all about the same size.
- Your office is 240 square feet (12 feet × 20
- Your home is 1,200 square feet.
- Your office is 20% (240 × 1,200) of the total area of
- Your business percentage is 20%.
- You use one room in your home for business.
- Your home has four rooms, all of about equal size.
- Your office is 25% (1 × 4) of the total area of your
- Your business percentage is 25%.
Use lines 1-7 of Form 8829, or lines 1-3 on the
worksheet near the end of this publication, to figure your business
You cannot deduct expenses for the business use of your home
incurred during any part of the year you did not use your home for
business purposes. For example, if you begin using part of your home
for business on July 1, and you meet all the tests from that date
until the end of the year, consider only your expenses for the last
half of the year in figuring your allowable deduction.
If your gross income from the business use of your home equals or
exceeds your total business expenses (including depreciation), you can
deduct all your business expenses related to the use of your home. If
your gross income from the business use is less than your total
business expenses, your deduction for certain expenses for the
business use of your home is limited.
Your deduction of otherwise nondeductible expenses, such as
insurance, utilities, and depreciation (with depreciation taken last),
allocable to the business, is limited to the gross income from the
business use of your home minus the sum of the following.
- The business part of expenses you could deduct even if you
did not use your home for business (such as mortgage interest, real
estate taxes, and casualty and theft losses, which are allowable as
itemized deductions on Schedule A (Form 1040)). These expenses are
discussed in detail under Deducting Expenses, later.
- The business expenses that relate to the business activity
in the home (for example, business phone, supplies, and depreciation
on equipment), but not to the use of the home itself.
If you are self-employed, do not include in (2) above your
deduction for half of your self-employment tax.
Carryover of unallowed expenses.
If your deductions are greater than the current year's limit, you
can carry over the excess to the next year. They are subject to the
deduction limit for that year, whether or not you live in the same
home during that year.
Figuring the deduction limit and carryover.
If you are an employee or file Schedule F (Form 1040), Profit
or Loss From Farming, use the worksheet near the end of this
publication to figure your deduction limit and carryover. If you file
Schedule C (Form 1040), figure your deduction limit and carryover on
You meet the requirements for deducting expenses for the business
use of your home. You use 20% of your home for this business. In 2001,
your business expenses and the expenses for the business use of your
home are deducted from your gross income in the following order.
|Gross income from business
interest and real estate taxes (20%)
|Business expenses not
related to the use of your home (100%) (business phone, supplies, and
depreciation on equipment)
|Less other expenses allocable to business use of
and utilities (20%)
|Depreciation allowed (20%
= $1,600 allowable)
|Other expenses up to the deduction
|Depreciation carryover to 2002
($1,600 - $200) (subject to deduction limit in 2002)
You can deduct all of the business part of your deductible mortgage
interest and real estate taxes ($3,000). You also can deduct all of
your business expenses not related to the use of your home ($2,000).
Additionally, you can deduct all of the business part of your expenses
for maintenance, insurance, and utilities, because the total ($800) is
less than the $1,000 deduction limit. Your deduction for depreciation
for the business use of your home is limited to $200 ($1,000 minus
$800) because of the deduction limit. You can carry over the $1,400
balance and add it to your depreciation for 2002, subject to your
deduction limit in 2002.
More than one place of business.
If part of the gross income from your trade or business is from the
business use of part of your home and part is from a place other than
your home, you must determine the part of your gross income from the
business use of your home before you figure the deduction limit. In
making this determination, consider the time you spend at each
location, the business investment in each location, and any other
relevant facts and circumstances.
If your home office qualifies as your principal place of business,
you can deduct your daily transportation costs between your home and
another work location in the same trade or business. For more
information on transportation costs, see Publication 463,
Entertainment, Gift and Car Expenses.