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Business use of home expenses in USA

Whether you're self-employed or a partner, you may be able to deduct some expenditures for the space of your home that you use for business reasons.

To deduct costs for home business usage, you must use a portion of your house for one of the following activities:

  1. Exclusively and frequently as your primary place of business for your trade or company.

  2. Exclusively and frequently as a location where you interact and meet with patients, clients, or customers during regular business hours.

  3. A separate building that is not connected to your house and is only and frequently used in conjunction with your trade or company.

  4. On a regular basis for inventory storage or product samples used in your trade or business of selling items at retail or wholesale, for rental purposes.

  5. As a childcare facility.

If the exclusive use requirement applies, you cannot deduct business expenditures for any section of your home that you use for both personal and business reasons. You cannot deduct any expenditures incurred because of using your home for professional purposes, such as if you are an attorney and prepare legal papers there as well as for personal use. Furthermore, to deduct expenditures for commercial use of your home, you must determine that your home is the principal site of your trade or corporation based on where you execute your most critical business tasks and spend the bulk of your business activity time.

If you utilise a section of your house for administrative or management work related to your trade or company and don't have any other fixed locations where you carry out major administrative or management responsibilities for that trade or business, that portion may qualify as your primary place of business.

Regular Method -

You compute the home office deduction by dividing operational costs between the home office and personal use. You may deduct all direct business expenses and divide your total indirect home expenses by the amount of your home's floor area that you use for business. A licenced childcare provider who does not use their home wholly for business must compute the percentage based on the amount of time the appropriate home space is used for business.

Simplified Option -

While taxpayers can still calculate the deduction using the usual method, many may find the optional safe harbour procedure to be less onerous. Revenue Procedure 2013 allows qualifying taxpayers to apply a predefined rate of $5 per square foot of the portion of the home utilised for business to compute the business use of house deduction. Under this safe harbour technique, depreciation is treated as zero, and the taxpayer claims the deduction directly on Schedule C. To demonstrate their decision to choose the safe harbour option rather than Form 8829, the taxpayer makes two direct entries on Schedule C for the square footage of the office and the house.

In the Farming Business or a Partner -

If you own a farm and file Schedule F (Form 1040), Profit or Loss from Farming, or if you're a partner and use real expenses, use the "Worksheet to Figure the Deduction for Business Use of Your Home" to figure your deduction. If you're utilising the simpler approach, use the "Simple Technique Worksheet" to calculate your deduction.


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