Whether you are an employee or self-employed, you may be able to deduct certain expenses
by using a part of your home for business purposes.
To deduct business-use-of-the-home expenses, a part of your home must be used regularly
and exclusively:
- As the principal place of business for any trade or business in which you engage,
- As the place where you meet and deal with your patients, clients, or customers in the
normal course of your trade or business; or
- In connection with your trade or business, if you use a separate structure that is not
attached to your home.
If you use both your home and other locations regularly in the same trade or business,
you must determine which location is your principal place of business. The two primary factors
used to determine your principal place of business are the amount of time spent in each business
location, and the relative importance of the activities performed at each location. After 1998,
where you perform substantial administrative and management activities will also be considered
in determining whether your home is your principal place of business.
In general, because of the exclusive use rule, you cannot deduct business expenses for any
part of your home that you use for both personal and business purposes. For example, if you
are an attorney and use the den of your home to write legal briefs and also for personal purposes,
you may not deduct any business-use-of-your-home expenses. The only exceptions to the
exclusive-business-use rule are for qualified daycare providers and for persons storing inventory
or product samples used in their business.
If you are an employee, additional rules apply. Even if you meet the exclusive and regular
use tests, you cannot take any deductions for the business use of your home unless:
this use of your home is for the convenience of your employer and your
employer does not pay you rent for the portion of your home that you
use in providing services as an employee.
Some of the deductible business use of the home expenses may include the business portion
of real estate taxes, mortgage interest, casualty losses, rent, utilities, insurance, depreciation,
painting and repairs. You may not deduct expenses for lawn care or for painting a room not used
for business.
The amount you can deduct depends on the percentage of your home used for business.
To figure this percentage, divide the number of square feet used for business by the
total square feet in your home. Or, if the rooms are approximately the same size, divide
the number of rooms used for business by the total number of rooms in your home.
You figure the business portion of your expenses by applying this percentage to the total
of each expense. Qualified day care providers must reduce their percentage to take
into account the time available for personal use of any area not used exclusively
for business.
If your gross income from the business use of your home is less than your total business
expenses, your deduction for certain expenses for the business use of your home is limited.
However, those business expenses that are not deducted because of the limit can be carried
forward as part of next year's business-use-of-the-home expenses.
Publication 587,
Business Use of Your Home, has detailed information on the business use
of your home rules. If you are an employee, use the worksheet in Publication 587
to figure your deductions. As an employee, you must itemize deductions on Schedule A
(Form 1040) to claim expenses for the business use of your home.
If you are self-employed, use
Form 8829 to figure your
business use of the home deductions and report those deductions on Schedule C, (Form 1040).
Publications can be downloaded from this site,
or ordered by calling 1-800-829-3676.
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