I purchased a computer last year to do online day trading part-time
from home for additional income. Can I deduct or depreciate the cost of the
computer or internet connection from my investment income?
You may deduct investment expenses (other than interest expenses) as miscellaneous
itemized deductions on Form 1040, Schedule A (PDF),
line 22,Itemized Deductions. This would include depreciation on
the portion of your computer used for investment purposes, and the portion
of your internet access charges used for investment purposes.
The acquisition cost of a computer purchased for investment use can be
depreciated over a 5-year recovery period. To elect to recover (expense) all
or part of the acquisition cost of the computer in the first year under section
179, the property must be used more than 50% for business use (as opposed
to investment use), and meet the other requirements for expensing under section
179. One of those section 179 requirements is that the total cost of qualifying
property you can deduct after you apply the dollar limit is limited to the
taxable income from the active conduct of any trade or business during the
year. See Publication 946, How to Depreciate Property for
additional information on the section 179 deduction.
Because these deductions (described in the 1st paragraph) are for investment
expenses rather than for business expenses, the sum of these deduction amounts
and other expense and deduction amounts included in Job Expenses and Certain
Miscellaneous Deductions of Form 1040, Schedule A must be reduced by 2% of
your adjusted gross income. Use Form 4562 (PDF), Depreciation
and Amortization, to compute the depreciation for the portion of your
computer used for investment purposes and Form 1040, Schedule A to determine
your reduced total amount under Job Expenses and Certain Miscellaneous Deductions..
I have a home office. Can I deduct expenses like mortgage, utilities,
etc., but not deduct depreciation so that when I sell this house, the basis
won't be affected?
If you qualify to deduct expenses for the business use of your home, you
can claim depreciation for the part of your home that is a home office. Generally,
the part of your home that is a home office is depreciated over a recovery
period of 39 years using the straight line method of depreciation and a mid-month
convention. If you do not claim depreciation on that part of your home that
is a home office, you are still required to reduce the basis of your home
for the allowable depreciation of that part of your home that is a home office
when reporting the sale of your home. For more information, refer to Publication 587, Business Use of Your Home.
I use my home for business. Can I deduct the expenses?
To deduct expenses related to the business use of part of your home, you
must meet specific requirements. Even then, your deduction may be limited.
Your use of the business part of your home must be:
- Exclusive (see *exceptions below),
- For your trade or business, AND
The business part of your home must be one of the
- Your principal place of business,
- A place where you meet or deal with patients, clients, or customers in
the normal course of your trade or business, or
- A separate structure (not attached to your home) you use in connection
with your trade or business.
Additional tests for employee use. If you are an employee
and you use a part of your home for business, you may qualify for a deduction.
You must meet the tests discussed above plus:
- Your business use must be for the convenience of your employer, and
- You do not rent any part of your home to your employer
and use the rented portion to perform services as an employee.
Whether the business use of your home is for your employer's convenience
depends on all the facts and circumstances. However, business use is not considered
to be for your employer's convenience merely because it is appropriate and
You do not have to meet the exclusive use test if you satisfy the rules
that apply in either of the following circumstances.
- You use part of your home for the storage of inventory or product samples.
- You use part of your home as a day-care facility.
Form 1040, Schedule C (PDF) filers calculate
the business use of home expenses and limits on Form 8829 (PDF) . The deduction is claimed on line 30 of Schedule C. Employees
claim deduction for business use of home as an itemized deduction on Form 1040, Schedule A (PDF) .
For more information refer to Tax Topic 509, Business Use of
Home, or Publication 587, Business Use of Your Home
(Including Use by Day-Care Providers).
Previous | FAQ Index | Next
You can search for information in the entire Tax Prep Help section, or in the entire site. For a more focused search, put your search word(s) in quotes.
Tax Topic Categories | FAQ Categories | Tax Prep Help Main | Home