IRS Form 8829 | Tax Expenses for Business Use of Your Home

You can deduct direct and indirect costs associated with your home office on Form 8829. These expenses may include:

• home insurance
• rent
• electricity
• gas
• internet
• home depreciation
• maintenance and repairs

You may also use Form 8829 to deduct any expenses for real estate taxes and mortgage interest that exceed the allowable personal limits set by the IRS.

Deductions Based on a Business Loss vs. Business Gain

The deductions you can make depend on whether your business has an overall loss or gain for the year.

Remember: the gross income limitation on IRS Form 8829 determines the maximum deductible expenses for the business use of your home. This limitation ensures that your home office deduction does not exceed the gross income generated from business activities.

Review a summary of the deductions you can make, depending on whether your business has a loss or gain:

The space must be used exclusively and regularly for business purposes to qualify as a home office. A space you only use one time or occasionally will not count.

Your home office must also be your main location for business activities, including administrative or management tasks. Even if you have another office outside your home, your home office still qualifies for the deduction if it’s where you primarily handle business operations.

Example of Calculating a Home Office

Imagine you use part of a spare bedroom as your home office. The room has a bed for guests and a desk for your work. You can only count the portion of the room you use exclusively for work—the desk area.

If the desk area is 100 square feet and your entire home is 2,000 square feet, the office represents 5% of your home. If you work in that space for 50% of your working hours, your deduction would be 2.5% of your home expenses for the year (5% × 50%).

How to Implement the Standard Method

The above example uses the standard method for calculating the deduction based on actual expenses and the portion of your home used for business. It factors in square footage and the percentage of time you use the space for work.

Follow these steps to implement the standard method for your unique situation:

1. Measure the square footage of the area you exclusively use as your home office.
2. Measure the square footage of your whole home.
3. Divide the office space by your total home size.
4. Factor in your usage time.
5. Apply your usage time to your expenses.

The standard method differs from the simplified one, which allows a deduction of $5 per square foot of home office space. You may apply this deduction for up to 300 square feet. If you implement the simplified method, you will not use Form 8829. Using the above example, your deduction with the simplified method would be $500 ($5 per square foot X 100 square feet).

Do Home Daycare Centers Qualify for the Home Office Deduction?

If you run a daycare center in your home, it also qualifies for the home office deduction. The tax guidelines for this situation are more flexible than those for other business types. For instance, if you use your living room during the day for your business, the space still counts as an office deduction if your family uses the space during the evening.

The IRS requires daycare providers to account for the square footage used and the time the area is used for work when calculating their deductible home expenses.

For example, if you run a daycare for 40 hours a week in a space in your home that makes up 50% of your home, you would use these percentages to determine your deductible expenses.

Form 8829 may look a little more intimidating than other IRS tax forms, but it’s pretty straightforward if you work through it according to its four parts.

1. Part of your home used for business: Calculate the percentage of your home used for business (Lines 1-7).
2. Figure your allowable deduction: Enter business income and deductible home expenses (Lines 8-36).
3. Depreciation of your home: Compute depreciation based on your home’s value and business use (Lines 37-42).
4. Carryover of unallowed expenses to 2025: Record excess expenses to deduct in the next tax year (Lines 43-44).

Part I: Part of Your Home Used for Business

In this section, you’ll calculate the percentage of your home used for business activities. Here are the steps to implement:

1. Find the square footage of your home office and enter it in Line 1.
2. Find the total square footage of your entire home and enter it in Line 2.
3. Divide the square footage from Line 1 by the square footage in Line 2.
4. Enter the result in Line 3.

Example: If your home office is 300 sq. ft. and your home is 1,800 sq. ft., divide 300 by 1,800 to get 16.67%. Enter 16.67% in Line 3.

If you run a home daycare, you must implement some additional yet simple steps:

1. Complete Lines 4-6 to adjust your calculation.
2. Multiply the amount in Line 6 by the percentage from Line 3.
3. Enter the result in Line 7.

If you don’t run a home daycare, simply enter the percentage from Line 3 directly into Line 7.

Part II: Figure Your Allowable Deduction

In Part II, you calculate your home business deduction. Start by entering the total income from your home business on Line 8. You can use the amount from Schedule C, line 29. Adjust this amount if you have gains or losses from using your home for business or if some business income comes from a location outside your home.

Calculate Expenses

Next, you’ll tally your expenses associated with using your home for business. The costs fall into two categories: direct and indirect. Direct expenses include costs used only for the company, like modifications to turn a room into an office. Indirect expenses are those related to both personal and business uses, like electricity.

Here’s how to fill out the next portion of Part II by lines:

• Lines 9-11: Enter direct or indirect expenses for casualty losses, mortgage interest, and real estate taxes.
• Line 12: Add Lines 9-11 together for each column.
• Line 13: Multiply Line 12, column (b), by Line 7.
• Line 14: Add Line 12, column (a), and Line 13.
• Line 15: Even if you don’t have casualty losses, real estate taxes, or mortgage interest to claim on Form 8829, make sure to enter the appropriate amount on Line 15. You’ll calculate this by subtracting the total of Line 14 from Line 8.
• Lines 16-17: Enter any excess mortgage interest and real estate taxes. These expenses are fairly unusual for the average taxpayer because they’re claimable as an itemized personal deduction on Form 1040.
• Lines 18-22: Enter costs associated with using your business for home use, including insurance, rent, maintenance and repairs, and utilities. Enter the full amount for each expense into the appropriate category—direct or indirect.
• Line 23: Add Lines 16-22 and enter the totals in Line 23.
• Line 24: Multiply the business percentage from Line 7 in Section 1 by Line 23, column (b), and enter it in Line 24.
• Line 25: If you have a carryover of operating expenses from the previous tax year, enter it in Line 25.
• Line 26: Input the result of adding Line 23, column (a), Line 24, and Line 25 together.

Determine Allowable Deduction for Home Expenses

Once you fill out Lines 9-26, you can determine your allowable expenses for the business use of your home. These are the costs you can deduct for maintaining and using part of your home only for business purposes.

Fill out the remainder of Part II line by line:

• Line 27: Enter the smaller number of Lines 15 and 26, as this input will be your allowable operating expenses.
• Line 28: Input the result of subtracting Line 27 from Line 15. This is the maximum amount you can claim for home depreciation and casualty losses.
• Line 29: Only complete if you have excess casualty losses.
• Line 30: Enter your home depreciation, which you will calculate in Part III.
• Line 31: Only complete if you have a carryover of excess casualty losses or depreciation from the previous year.
• Line 32: Add Lines 29, 30, and 31, and enter the total.
• Line 33: Compare Lines 28 and 32, and enter the smaller number.
• Line 34: Add Lines 14, 27, and 33, and enter the total.
• Line 35: If any of your expenses from Lines 14 and 33 are casualty losses, enter the total.
• Line 36: Subtract Line 35 from Line 34 to get your Allowable Expenses for the Business Use of Your Home. Enter this number.

Once you finish these lines, you can transfer the total in Line 36 to Schedule C, Line 30 as a deduction.

Part III: Depreciation of Your Home

Depreciation allows you to account for the gradual wear and tear of your home used for business, offering a significant tax advantage under the standard method. While the process may seem complex, breaking it into manageable steps can simplify the calculations and ensure you’re maximizing your deduction.

Calculate the depreciation of your home using these steps:

1. Enter the smaller of the cost basis or fair market value of your home in Line 37. If you completed Form 8829 in a previous year, use the same cost basis.
2. Enter the smaller of the cost basis or fair market value of your land in Line 38.
3. Subtract Line 38 from Line 37 to get the depreciation basis for your home (excluding the land). Enter the result in Line 39.
4. Multiply the business percentage from Part I by the number in Line 39. Enter the result in Line 40.
5. Enter the depreciation percentage in Line 41.

If you started using your home for business between May 12, 1993, and December 31, 2023, the depreciation rate is typically 2.564%. If you started in 2024, refer to the provided chart for the applicable rate.

Finally, multiply the Line 41 depreciation percentage by Line 40, the business basis of your home. The result is the allowable depreciation, which you enter on Line 42 and again on Line 30.

Part IV: Carryover of Unallowed Expenses to 2025

Only fill out Part IV if you have an excess of home business expenses you can’t claim in 2024. You’ll know you have a carryover if Line 26 exceeds Line 15.

Calculate the amount by following these steps:

1. Subtract Line 27 from Line 26 and enter it into Line 43.
2. Subtract Line 33 from Line 32 to calculate any excess casualty losses or depreciation. Enter the amount Line 44.
3. Keep your carryover amounts available for the next tax year, as you can use them for a deduction.

Use this checklist to ensure you have all the necessary information to claim your home office expenses accurately and maximize your potential tax savings.

1. Determine whether you qualify for a home business expense deduction.
2. Gather receipts, invoices, and other documents related to your home business expenses. Some examples include your monthly rent or mortgage statement, electricity bill, and homeowner’s or renter’s insurance.
3. Calculate the size of the area in your home used for business activities.
4. Complete the form using available resources and documents.
5. Transfer your deduction from Form 8829, Line 36, onto Schedule C, Line 30.
6. Submit Form 8829 and related documents with Form 1040 to the IRS.

Explore additional tax forms that relate to self-employed individuals:

• Form W-9: Gathers relevant tax information from self-employed individuals so payers can report tax payments properly.
• Form 1099-NEC: Clients send this form to self-employed individuals by January 31 if their payments exceed $600.
• Form 1040: Calculates a taxpayer’s income, deductions, and total tax liability.

You can easily complete and save these forms for download using our convenient PDF editor.

Making a home office tax deduction for a space not clearly dedicated for business purposes can present an audit risk. If you have questions about Form 8829 or whether your home office qualifies for a deduction, we recommend consulting a qualified tax advisor. They can ensure that you adhere to applicable regulations and stay in compliance.

While Legal Templates aims to provide accurate and up-to-date information, we cannot offer tax or legal advice. A professional can provide guidance catered to your business’s unique circumstances and help determine if your home office meets the requirements for a deduction.

How Legal Templates Helps

While we don’t offer tax advice, we provide a fillable Form 8829 in our PDF editor, where you can enter the relevant numbers for your home office expenses, such as the square footage of your office space and your total home size. By using this form, you may reduce your tax bill more effectively than with the simplified method alone.