Are You Eligible for the IRS Home Office Deduction?

Table of Content

• Example of Regular Home Office Deduction Calculation
• (Including Use by Daycare Providers)
• Defining the IRS Mileage Commuting Rule
• The Tax Rules for Home Businesses and Working From Home
• Daycare Facility Worksheet (for simplified method)
• How to Determine Your Home Office Tax Deduction
• Are You Eligible for the IRS Home Office Deduction?

On line 35, enter the smaller of the adjusted basis or the fair market value of the property at the time you first used it for business. Do not adjust this amount for changes in basis or value after that date. Allocate the basis between the land and the building on lines 36 and 37. On line 39, enter the correct percentage for the current year from the tables in Pub.

You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Your home is the only fixed location of your business of selling mechanics' tools at retail. You regularly use half of your basement for storage of inventory and product samples. The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business.

Example of Regular Home Office Deduction Calculation

Only include on line A the gross income from the business that is related to the business use of your home. Only include on line D and line E the deductible business expenses and losses that are related to the business activity in the home, but not related to the business use of the home itself. On line 33, enter the total of the casualty losses shown on lines 10 and 31. Enter the amount from line 33 on line 27 of Form 4684, Section B. Attach a statement to your tax return showing how you calculated the deductible loss and enter "See attached statement" above line 27 of Form 4684. See the Instructions for Form 4684 for more information on completing that form.

If the use of part of your home as a daycare facility is regular, but not exclusive, you must figure the percentage of time that part of your home is used for daycare. A room that is available for use throughout each business day and that you regularly use in your business is considered to be used for daycare throughout each business day. You do not have to keep records to show the specific hours the area was used for business. However, a room you use only occasionally for business does not qualify for the deduction.

(Including Use by Daycare Providers)

Direct deposit also avoids the possibility that your check could be lost, stolen, or returned undeliverable to the IRS. Eight in 10 taxpayers use direct deposit to receive their refunds. If you don’t have a bank account, go to IRS.gov/DirectDeposit for more information on where to find a bank or credit union that can open an account online. If you and another person both used the home to conduct business that qualifies for the deduction, the same area cannot be used by both persons to figure the deduction.

You must consider all facts and circumstances in determining whether your use is on a regular basis. With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Deducting expenses for furniture and equipment used in your business. Line 14—Excess home mortgage interest and mortgage insurance premiums. Publication 587 has detailed information on rules for the business use of your home, including how to determine whether your home office qualifies as your principal place of business.

Defining the IRS Mileage Commuting Rule

If you sell or exchange your home, you may be able to exclude up to $250,000 ($500,000 for certain married persons filing a joint return) of the gain on the sale or exchange. However, even if you meet the ownership and use tests, your home sale is not eligible for the exclusion if either of the following is true. The allowable area of your home used in conducting the business. If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month.

With the simplified method, the square footage of the property is multiplied by a prescribed rate. You will get a deduction for home office of $5 per sq ft of your office home. If you used your home for more than one qualified business use, the total area that you can use to figure the deduction is still only 300 square feet, not 300 square feet per business use.

You also cannot deduct any depreciation (including any additional first-year depreciation) or section 179 expense for the portion of the home that is used for a qualified business use. The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. If you figure your deduction for business use of the home using actual expenses in a subsequent year, you will have to use the appropriate optional depreciation table for MACRS to figure your depreciation.

If you are filing Schedule A to increase your standard deduction by a net qualified disaster loss, see Casualty losses reported on line 5, later. Certain expenses related to the use of your home may be deducted whether or not you use your home for business. These expenses may include some or all of your mortgage interest, mortgage insurance premiums, real estate taxes, and casualty losses attributable to a federally declared disaster. Where you deduct these expenses depends on how you figure your deduction for business use of the home. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. When completing line 2 of this worksheet for the Worksheet To Figure the Deduction for Business Use of Your Home, enter your adjusted gross income excluding the gross income and deductions attributable to the business use of the home.

In general, a taxpayer may not deduct expenses for the parts of their home not used for business; for example, expenses for lawn care or painting a room not used for business. If you’re self-employed, you can still claim the home office tax deduction for qualifying costs, whether you use the actual expenses or the simplified method. The deduction decreases your business income, and therefore, your gross income. Deductible expensesfor business use of home normally include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs.

Your home is the only fixed location of your trade or business. You keep the inventory or product samples in your home for use in your trade or business. Go to IRS.gov/Forms to download current and prior-year forms, instructions, and publications.