Keyword: Home Office

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),
Regular,
For your trade or business, AND

The business part of your home must be one of the following:

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 helpful.

*exceptions

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

SEARCH:

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