Deducting Expenses
http://www.irs.gov/publications/p587/ar02.html#d0e1041
If you qualify to deduct expenses for the business
use of your home, you must divide the expenses of operating your home between
personal and business use. This section discusses the types of expenses you may
have and gives examples and brief explanations of these expenses.
Types of Expenses
The part of a home operating
expense you can use to figure your deduction depends on both of the following.
- Whether the expense is
direct, indirect, or unrelated.
- The percentage of your home
used for business.
Table 1, next, describes
the types of expenses you may have and the extent to which they are deductible.
Table 1. Types of Expenses
|
Expense
|
Description
|
Deductibility
|
|
Direct
|
Expenses only for
the business part
of your home.
|
Deductible
in full.*
|
|
|
Examples:
Painting or repairs
only in the area
used for business.
|
Exception:
May be only partially
deductible in a daycare
facility. See Daycare
Facility, later.
|
|
Indirect
|
Expenses for
keeping up
and running your
entire home.
|
Deductible based on the percentage of your home used for business.*
|
|
|
Examples:
Insurance,
utilities, and
general repairs.
|
|
|
Unrelated
|
Expenses only for
the parts of your
home not used
for business.
|
Not
deductible.
|
|
|
Examples:
Lawn care or painting
a room not used
for business.
|
|
|
*Subject to the deduction limit, discussed earlier.
|
Form 8829 and the deduction worksheet (both illustrated near the end of
this publication) have separate columns for direct and indirect expenses.
Expenses related to tax-exempt income.
Generally, you cannot deduct expenses that are related to tax-exempt
allowances. However, if you receive a tax-exempt parsonage allowance or a
tax-exempt military allowance, your expenses for mortgage interest and real
estate taxes are deductible under the normal rules. No deduction is allowed for
other expenses related to the tax-exempt allowance. If your
housing is provided free of charge and the value of the housing is tax exempt,
you cannot deduct the rental value of any portion of the housing.
Examples of Expenses
Certain
expenses are deductible whether or not you use your home for business. If you
qualify to claim business use of the home expenses, use the business percentage
of these expenses to figure your total business use of the home deduction.
These expenses include the following.
- Real estate taxes.
- Deductible mortgage
interest.
- Casualty losses.
- Other expenses are
deductible only if you use your home for business. You can use the
business percentage of these expenses to figure your total business use of
the home deduction.
These expenses generally
include (but are not limited to) the following.
- Depreciation (covered under
Depreciating Your Home, later).
- Insurance.
- Rent.
- Repairs.
- Security system.
- Utilities and services.
Real Estate Taxes
To figure the business part
of your real estate taxes, multiply the real estate taxes paid by the
percentage of your home used for business.
For more information on the
deduction for real estate taxes, see Publication 530, Tax Information for
First-Time Homeowners.
Deductible Mortgage
Interest
To figure the business part
of your deductible mortgage interest, multiply this interest by the percentage
of your home used for business. You can include interest on a second mortgage
in this computation. If your total mortgage debt is more than $1,000,000 or
your home equity debt is more than $100,000, your deduction may be limited. For
more information on what interest is deductible, see Publication 936, Home
Mortgage Interest Deduction.
Casualty Losses
If you have a casualty loss
on your home that you use for business, treat the casualty loss as a direct expense,
an indirect expense, or an unrelated expense, depending on the property
affected.
A direct expense is the loss
on the portion of the property you use only in your business. Use the entire
loss to figure the business use of the home deduction.
An indirect expense is the
loss on property you use for both business and personal purposes. Use only the
business portion to figure the deduction.
An unrelated expense is the
loss on property you do not use in your business. Do not use any of the loss to figure the
deduction.
If you are filing Schedule C
(Form 1040), get Form 8829 and follow the instructions for casualty losses.
If you are an employee or a
partner, or you file Schedule F (Form
1040), use the Worksheet To Figure the Deduction for Business Use of Your Home,
near the end of this publication. You
will also need to get Form 4684, Casualties and Thefts. For more information on
casualty losses, see Publication 547, Casualties, Disasters, and Thefts.
Insurance
You can deduct the cost of
insurance that covers the business part of your home. However, if your
insurance premium gives you coverage for a period that extends past the end of
your tax year, you can deduct only the business percentage of the part of the
premium that gives you coverage for your tax year. You can deduct the business
percentage of the part that applies to the following year in that year.
Rent
If you rent the home you
occupy and meet the requirements for business use of the home, you can deduct
part of the rent you pay.
To figure
your deduction, multiply your rent payments by the percentage of your home used
for business.
If you own your home, you
cannot deduct the fair rental value of your home. However, see Depreciating
Your Home, later.
Repairs
The cost of repairs that
relate to your business, including labor (other than your own labor), is a
deductible expense.
For example, a furnace
repair benefits the entire home. If you use 10% of your home
for business, you can deduct 10% of the cost of the furnace repair.
Repairs keep your home in
good working order over its useful life. Examples of common repairs
are patching walls and floors, painting, wallpapering, repairing roofs and
gutters, and mending leaks.
However, repairs are
sometimes treated as a permanent improvement. See Permanent improvements, later, under Depreciating Your
Home.
Security System
If you install a security
system that protects all the doors and windows in your home, you can deduct the
business part of the expenses you incur to maintain and monitor the system. You
also can take a depreciation deduction for the part of the cost of the security
system relating to the business use of your home.
Utilities and Services
Expenses for utilities and
services, such as electricity, gas, trash removal, and cleaning services, are
primarily personal expenses. However, if you use part of your home for
business, you can deduct the business part of these expenses. Generally, the
business percentage for utilities is the same as the percentage of your home
used for business.
Telephone.
The basic local telephone
service charge, including taxes, for the first telephone line into your home is
a nondeductible personal expense. However, charges for business long-distance
phone calls on that line, as well as the cost of a second line into your home
used exclusively for business, are deductible business expenses.
Do not include these
expenses as a cost of using your home for business.
Deduct these charges
separately on the appropriate form or schedule.
For example, if you file
Schedule C (Form 1040), deduct these expenses on line 25, Utilities, (instead
of line 30).
