Using Your Home for Business

Regardless of if you are self-employed or an employee of another business, if you use any part of your home for conducting business, you may be able to deduct certain expenses. Your home must be used in one of the following ways:

  • Exclusively, and on a regular basis as your primary place of business
  • A place where you exclusively meet with customers, patients, or clients as a regular part of your business operations
  • A separate building used in relation to your business that is not attached to the home but is used regularly and exclusively
  • On a regular basis for storage
  • Rental use
  • As a daycare facility

You are not able to deduct expenses incurred for parts of your home that are used for both personal and business reasons. Your home office has to be used exclusively for your business. Also, your home must be the principal place of conducting business. You should perform a majority of business activity and spend most of your time for your business in hat portion of your home in order to deduct the expense. This can include using it for administrative and management portion of your home, if you have no consistent place of business activity, like a contractor for example. are only able to deduct home if they spend a majority of their business time working from the home, and it is more convenient for their employer.

It’s possible to deduct business storage purposes when the unit is the only fixed location of the business, or the residence is used as a day care facility. Exclusive use is not necessary in these cases.

can include real estate taxes, mortgage interest, rent, casualty losses, utilities, repairs, and insurance, maintenance and depreciation costs associated with the business use of your home. Lawn care, landscaping, or painting in rooms not used for business are non-deductible.

Generally, you could compute a home business use deduction by taking a percentage of the home’s square footage over that which is used for business. Daycare providers must use a percentage of time the home is used for business. Self-employed individuals can calculate their deductions on Form 8829, Expenses for Business Use of Your Home, and then file a Schedule C, Profit of Loss from Business (Sole Proprietorship) of their tax return.

Taxpayers are able to calculate their deduction as always, though a new safe harbor method can be less complicated. Qualified taxpayers can use a predetermined rate of $5 per square foot up to a maximum of 300 square feet in order to calculate the home business deduction. With the safe harbor method, depreciation is zero, and the deductions is claimed directly on a Schedule C by making two entries relating to the total square footage of the home, and the footage of the office use exclusively. This indicates the use of the safe harbor method.

Regardless of how the deduction is calculated, you must abide by the gross income limitation, and deductions cannot exceed this amount. There’s a possibility you can carry forward some of your expenses to the next year if you use the regular method, though they are still subject to the gross income limit. You can’t carry over expenses if you use the safe harbor method, though you may elect in and out of the method in any year.

Employees are required to itemize deductions using a of Form 1040, if they chose to deduct relating to their home. Farmers can claim expenses on a Schedule F, Profit and Loss from Farming.