Do you qualify for a home office deduction? If so, you’ll want to read our guide with easy to understand Instructions for the IRS Form 8829.
Form 8829: The Home Office Expenses Deduction Form
When you are a self-employed individual or a small business owner who uses part of your home for your business, the IRS lets you claim a Home Office Deduction on your federal income tax return. Form 8829 is the form you will use to claim this special tax deduction. This form lets you calculate allowable expenses for business use of your home to deduct from your income.
First understand that you can only claim this deduction if you are self-employed. If you’re an employee who works from home for another company, you can not deduct any home office expenses.
How Do You File Form 8829?
To file Form 8829, file it with Schedule C, which is the form to report profit or loss from your business. On line 30 of the Schedule C, you report the total home office deduction amount.
Do You Qualify for the Home Office Deduction?
Before you get started, verify you qualify for this deduction.
To qualify as a “business use of your home”:
- Your office space must be exclusively used for business
- The home office area must be your regular place of business
You must have a dedicated area that is only used for your business in part of your home or a structure outside. For example, if you use your dining table to run your business during the day, but also use it for meals, that will not qualify as a dedicated home office.
So what counts are your principal place of business? According to the IRS, it is when the management and administrative work of your business is carried out there, and not at any other location. For example, if you are a sales rep and you visit businesses all day to sell your products, but at night you come home and do all your paperwork, then your home office is considered your main place of business.
Limits To The Home Office Deduction
Even if you qualify for the deduction, the home office deduction has a couple of limits. First, your business has to have a positive net income to claim the deduction. You can’t claim the home office deduction if your business’s net income is negative.
Second, the deduction is limited to your total net business income.
Filling Out Form 8829
Part 1
The first step is to measure your home office area. This is to give you a percentage number that will tell you how much of your home is used for your business. This number is important and you’ll use it in several places on the form.
Let’s say your home is 2,000 square feet and the area you use for your office is 500 square feet. This means you use 25% of your home for your business. This percentage applies when you want to calculate expenses, like how much of the rent you can deduct.
Unless you run a daycare business, you will only use lines one, two, three and seven in this section. Calculate the business percentage that you’ll use from here out. If you run a daycare business in your home, you’ll need to refer to special instructions in this IRS publication.
Part 2: Your Allowable Deduction
In part 2, separate your direct and indirect expenses that relate to your home so you can deduct them in the end.
- Direct expenses relate to the office part of your home. If you put new flooring in your office, that is a direct expense.
- Indirect expenses relate to your whole home, including your home office. If you put new flooring in the entire house, including your office area, this is an indirect expense.
Use lines 9, 10, and 11 for expenses that would have been a personal expense if you have not used your home for business. These expenses include certain casualty losses, mortgage interest, and real estate taxes.
Next, on lines 16 through 31, enter other expenses, including:
- Excess mortgage interest paid
- Excess real estate taxes
- Insurance
- Rent
- Repairs and maintenance
- Utilities
- Other operating expenses
- Depreciation
- Excess casualty losses
Part 3: Depreciation
Part 3 is lines 37 – 40, and involves calculation of the allowable depreciation on your home, based on the cost. Just like in the previous sections, first calculate the amount of depreciation for the home. Then your home business percentage applies to that amount.
Part 4: Carryover of Unallowed Expenses
Your deduction for the business use of your home is limited if your expenses are more than your gross income from the business. However, you may be able to carry over some of the excess expenses into the next year.
If your expenses are greater than the current year’s limit, you can carry over the excess expenses to the next year. However, the carryover will be subject to the deduction limit for that year, whether or not you live in the same home during that year.
Save Money By Writing Off Your Expenses
Writing off home office expenses does not have to be complicated. Gather your records, and add up all your expenses related to your business. Pay close attention to the calculations on the form. If you know how to claim the home office deduction, you can save money on your taxes, so it’s worth carefully filling out Form 8829 by the instructions.