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5. Business Use of Home
BY ROBERT E. MCKENZIE, ESQ.
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 business–use–of–the–home expenses, part
of your home must be used regularly and exclusively as one of the following:
1.
Regularly and
exclusively as the principal place of business for your trade or business;
2.
Regularly and
exclusively as the place where you meet and deal with your patients, clients,
or customers in the normal course of your trade or business; or
3.
In connection with your
trade or business, if you use a separate structure that is not attached to your
home.
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 your most important activities are performed and most of your
time is spent, in order to deduct expenses for the business use of your home.
Your home office will also qualify as your principal
place of business for deducting expenses for its use if you meet the following
requirements:
1.
You use it exclusively
and regularly for administrative or management activities of your trade or
business; and
2.
You have no other fixed
location where you conduct substantial administrative or management activities
of your trade or 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–use rule are for qualified day–care 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:
·
the business use of
your home is for the convenience of your employer; and
·
you do not rent any
part of your home to your employer and use the rented part to perform services
as an employee.
Deductible expenses for business use of your home
include the business portion of real estate taxes, deductible 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.
When figuring the amount you can deduct for the business
use of your home, you can use the entire amount of expenses attributable solely
to the portion of the home used in your business. The amount you can deduct for
expenses attributable to the whole house depends on the percentage of your home
used for business. To figure this percentage, you may 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 account for personal use of any area
not used exclusively for business when calculating the percentage of the home
used 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 can not be deducted because of the gross income limitation can be carried
forward to the next year but will be subject to the deduction limit for that
year.
If you are in the business of farming or are an
employee, use the worksheet in Publication 587 ,
Business Use of Your Home, (including use by daycare providers) to figure
your deduction. As an employee, you must itemize deductions on Schedule A Form 1040 (PDF) to claim
expenses for the business use of your home. Farmers claim their expenses on Form 1040, Schedule F
(PDF). If you are self–employed, use Form 8829 (PDF) to figure
your business–use–of –the–home deductions and report those deductions on
Schedule C, Form 1040
(PDF).
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.