Publication 587 |
2000 Tax Year |
Figuring the Deduction
After you determine that you meet the tests under Qualifying
for a Deduction, you can begin to figure how much you can
deduct. You will need to figure the percentage of your home used for
business and the limit on the deduction.
Business Percentage
To find the business percentage, compare the size of the part of
your home that you use for business to your whole house. Use the
resulting percentage to figure the business part of the expenses for
operating your entire home.
You can use any reasonable method to determine the business
percentage. The following are two commonly used methods for figuring
the percentage.
- Divide the area (length multiplied by the width) used for
business by the total area of your home.
- Divide the number of rooms used for business by the total
number of rooms in your home. You can use this method if the rooms in
your home are all about the same size.
Example 1.
- Your office is 240 square feet (12 feet x 20
feet).
- Your home is 1,200 square feet.
- Your office is 20% (240 x 1,200) of the total area of
your home.
- Your business percentage is 20%.
Example 2.
- You use one room in your home for business.
- Your home has four rooms, all of about equal size.
- Your office is 25% (1 x 4) of the total area of your
home.
- Your business percentage is 25%.
Use lines 1-7 of Form 8829, or lines 1-3 on the
worksheet near the end of this publication, to figure your business
percentage.
Part-Year Use
You cannot deduct expenses for the business use of your home
incurred during any part of the year you did not use your home for
business purposes. For example, if you begin using part of your home
for business on July 1, and you meet all the tests from that date
until the end of the year, consider only your expenses for the last
half of the year in figuring your allowable deduction.
Deduction Limit
If your gross income from the business use of your home equals or
exceeds your total business expenses (including depreciation), you can
deduct all your business expenses. If your gross income from that use
is less than your total business expenses, your deduction for certain
expenses for the business use of your home is limited.
Your deduction of otherwise nondeductible expenses, such as
insurance, utilities, and depreciation (with depreciation taken last),
allocable to the business, is limited to the gross income from the
business use of your home minus the sum of the following.
- The business part of expenses you could deduct even if you
did not use your home for business (such as mortgage interest, real
estate taxes, and casualty and theft losses, which are discussed under
Deducting Expenses, later).
- The business expenses that relate to the business activity
in the home (for example, salaries or supplies), but not to the use of
the home itself.
If you are self-employed, do not include in (2) above your
deduction for half of your self-employment tax.
Carryover of unallowed expenses.
If your deductions are greater than the current year's limit, you
can carry over the excess to the next year. They are subject to the
deduction limit for that year, whether or not you live in the same
home during that year.
Figuring deduction limit and carryover.
If you are an employee or file Schedule F (Form 1040), Profit
or Loss From Farming, use the worksheet near the end of this
publication to figure your deduction limit and carryover. If you file
Schedule C (Form 1040), figure your deduction limit and carryover on
Form 8829.
Example.
You meet the requirements for deducting expenses for the business
use of your home. You use 20% of your home for this business. In 2000,
your business expenses, and expenses for the business use of your home
are deducted from your gross income in the following order.
Gross income from business |
$6,000 |
Less: |
Deductible mortgage interest and real estate
taxes (20%) |
3,000 |
Business expenses not related to the use of
your home (100%) (business phone, supplies, and depreciation on
equipment) |
2,000 |
Deduction limit |
$1,000 |
Less other expenses allocable to business use of
home: |
Maintenance, insurance, and
utilities (20%) |
800 |
Depreciation allowed (20% = $1,600
allowable) |
200 |
Other expenses up to the deduction limit |
$1,000 |
Depreciation carryover to 2001
($1,600 - $200) (subject to deduction limit in 2001) |
$1,400 |
You can deduct all of the business part of your deductible mortgage
interest and real estate taxes ($3,000). You also can deduct all of
your business expenses not related to the use of your home ($2,000).
Additionally, you can deduct all of the business part of your expenses
for maintenance, insurance, and utilities, because the total ($800) is
not more than the $1,000 deduction limit. Your deduction for
depreciation for the business use of your home is limited to $200
($1,000 minus $800) because of the deduction limit. You can carry over
the $1,400 balance and add it to your depreciation for 2001, subject
to your deduction limit in 2001.
More than one place of business.
If part of the gross income from your trade or business is from the
business use of part of your home and part is from a place other than
your home, you must determine the part of your gross income from the
business use of your home before you figure the deduction limit. In
making this determination, consider the time you spend at each
location, the business investment in each location, and any other
relevant facts and circumstances.
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