Tax Information Regarding Business Use of the Home
Get answers to common questions about federal taxes and business use of the home. This is a major tax topic as an increasing number of Americans are working remotely.
Overview
Qualification Tests: Used exclusively on a regular basis AND one of the following must apply:
-
Storing inventory for a wholesale or retail business for which the taxpayer’s home is the only fixed location of the business
-
Used as a licensed day care centerA separate structure (caution – home sale gain exclusion will not apply to the separate structure)
-
Where the taxpayer meets with customers, patients, or clients
-
The principal place of business
Employees –
-
Office must be for the convenience of the employer
-
Tier-2 Itemized –not deductible for AMT
-
2018 – 2025: Suspended by the TCJA
Self-Employed – Schedule C
Depreciation - MACRS straight-line over 39 years
Deduction Limit – Limited to the income from the activity
Simplified (Safe Harbor) Deduction
-
$5 per square foot (maximum square footage of 300).
-
Maximum deduction $1,500
-
No other indirect expenses allowed
-
Interest & Taxes deductible as usual on Schedule A
Carryover (not applicable for Simplified Method)
-
Never includes interest or taxes which are always currently deductible
-
In two parts – Depreciation and other expenses (depreciation is used last)
Multiple Offices – Reduced by all business expenses
Sale of Home with Office – See guide "Sale of a Home"
Home Office Worksheet – See Pub 587
Related IRC and IRS Publications and Forms
-
Pub 551 – Basis of Assets
-
Pub 587 – Business Use of Your Home
-
Pub 523 – Selling Your Home
-
Form 8829 –Business Use of Your Home (Sch C Only)
-
IRC Sec 280A - Disallowance of Certain Expenses
Employee business expenses, including the business use of a home, are not deductible in years 2018-2025 for federal purposes (may be in state depending upon a particular state’s conformity to federal tax laws) because the TCJA suspended miscellaneous itemized deductions subject to the 2% of AGI reduction. The rules explained in this chapter continue to apply to self-employed individuals.
According to IRC Sec 280A, expenses related to a taxpayer’s “dwelling unit” are normally not deductible (with the exception of qualified home mortgage interest, real estate taxes, and casualty losses, but for 2018-2025 only casualties occurring in federal disaster areas). The term “dwelling unit” can mean a house, apartment, condo, mobile home, or boat. When a home is used partially for business or as a rental, special rules apply as outlined below.