Page 40 - Tax Guide for Small Business

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the business use of your home under the principal place
Business Use of business test, your home must be your principal place
of Your Home of business for that business. To determine your principal
place of business, you must consider all the facts and cir-
To deduct expenses related to the part of your home used cumstances.
Your home office will qualify as your principal place of
for business, you must meet specific requirements. Even business for deducting expenses for its use if you meet
then, your deduction may be limited. the following requirements.
To qualify to claim expenses for business use of your • You use it exclusively and regularly for administrative
home, you must meet the following tests. or management activities of your business.
1. Your use of the business part of your home must be: • You have no other fixed location where you conduct
a. Exclusive (however, see Exceptions to exclusive substantial administrative or management activities of
use, later); your business.
Alternatively, if you use your home exclusively and reg-
b. Regular; ularly for your business, but your home office does not
c. For your business; and qualify as your principal place of business based on the
2. The business part of your home must be one of the previous rules, you determine your principal place of busi-
ness based on the following factors.
following:
a. Your principal place of business (defined later); • The relative importance of the activities performed at
each location.
b. A place where you meet or deal with patients, cli- • If the relative importance factor does not determine
ents, or customers in the normal course of your your principal place of business, you also can con-
business; or sider the time spent at each location.
c. A separate structure (not attached to your home) If, after considering your business locations, your home
you use in connection with your business. cannot be identified as your principal place of business,
you cannot deduct home office expenses. However, for
Exclusive use. To qualify under the exclusive use test, other ways to qualify to deduct home office expenses, see
you must use a specific area of your home only for your Pub. 587.
trade or business. The area used for business can be a
room or other separately identifiable space. The space Deduction limit. If your gross income from the business
does not need to be marked off by a permanent partition. use of your home equals or exceeds your total business
You do not meet the requirements of the exclusive use expenses (including depreciation), you can deduct all
test if you use the area in question both for business and your business expenses related to the use of your home.
for personal purposes. If your gross income from the business use is less than
your total business expenses, your deduction for certain
Example. You are an attorney and use a den in your expenses for the business use of your home is limited.
home to write legal briefs and prepare clients' tax returns. Your deduction of otherwise nondeductible expenses,
Your family also uses the den for recreation. The den is such as insurance, utilities, and depreciation (with depre-
not used exclusively in your profession, so you cannot ciation taken last), allocable to the business is limited to
claim a business deduction for its use. the gross income from the business use of your home mi-

Exceptions to exclusive use. You do not have to nus the sum of the following.
meet the exclusive use test to the extent you use part of 1. The business part of expenses you could deduct even
your home in either of the following ways. if you did not use your home for business (such as
1. For the storage of inventory or product samples. mortgage interest, real estate taxes, and casualty and
2. As a daycare facility. theft losses that are allowable as itemized deductions
on Schedule A (Form 1040 or 1040-SR)).
For an explanation of these exceptions, see Pub. 587, 2. The business expenses that relate to the business ac-
Business Use of Your Home (Including Use by Daycare tivity in the home (for example, business phone, sup-
Providers). plies, and depreciation on equipment), but not to the

Regular use. To qualify under the regular use test, you use of the home itself.
must use a specific area of your home for business on a Do not include in (2) above your deduction for one-half of
continuing basis. You do not meet the test if your business your self-employment tax.
use of the area is only occasional or incidental, even if you Use Form 8829, Expenses for Business Use of Your
do not use that area for any other purpose. Home, to figure your deduction.

Principal place of business. You can have more than Simplified method. The IRS provides a simplified
one business location, including your home, for a single method to determine your expenses for business use of
trade or business. To qualify to deduct the expenses for your home. The simplified method is an alternative to

Page 38 Chapter 8 Business Expenses