Publication 587 |
2001 Tax Year |
Deducting Expenses
If you qualify to deduct expenses for the business use of your
home, you must divide the expenses of operating your home between
personal and business use. This section discusses the types of
expenses you may have and gives examples and brief explanations of
these expenses.
Types of Expenses
The part of a home operating expense you can use to figure your
deduction depends on both of the following.
- Whether the expense is direct, indirect, or
unrelated.
- The percentage of your home used for business.
The following table describes the types of expenses you may have
and the extent to which they are deductible.
Expense |
Description |
Deductibility |
Direct |
Expenses only for
the business part
of your home. |
Deductible in
full.* |
| Examples:
Painting or repairs
only in the area
used for business. |
Exception:
May be only partially
deductible in a day-care
facility. See Day-Care
Facility, later. |
Indirect |
Expenses for
running your
entire home. |
Deductible based on
the percentage of your home used for business.* |
| Examples:
Insurance,
utilities, and
general repairs. |
Unrelated |
Expenses only for
the parts of your
home not used
for business. |
Not
deductible. |
| Examples:
Lawn care or painting
a room not used
for business. |
*Subject to the
deduction limit, discussed earlier. |
Form 8829 and the deduction worksheet (both illustrated near the
end of this publication) have separate columns for direct and indirect
expenses.
Expenses related to tax-exempt income.
Generally, you cannot deduct expenses that are related to
tax-exempt allowances. However, if you receive a tax-exempt parsonage
allowance or a tax-exempt military allowance, your expenses for
mortgage interest and real estate taxes are deductible under the
normal rules. No deduction is allowed for other expenses related to
the tax-exempt allowance.
If your housing is provided free of charge and the value of the
housing is tax-exempt, you cannot deduct the rental value of any
portion of the housing.
Examples of Expenses
Certain expenses are deductible whether or not you use
your home for business. If you qualify to claim business use of the
home expenses, you can use the business percentage of these expenses
to figure your total business use of the home deduction. These
expenses include the following.
- Real estate taxes.
- Deductible mortgage interest.
- Casualty losses.
Other expenses are deductible only if you use your home
for business. You can use the business percentage of these expenses to
figure your total business use of the home deduction. These expenses
generally include (but are not limited to) the following.
- Depreciation (covered under Depreciating Your Home,
later).
- Insurance.
- Rent.
- Repairs.
- Security system.
- Utilities and services.
Real Estate Taxes
To figure the business part of your real estate taxes, multiply the
real estate taxes paid by the percentage of your home used for
business.
For more information on the deduction for real estate taxes, see
Publication 530,
Tax Information for First-Time Homeowners.
Deductible Mortgage Interest
To figure the business part of your deductible mortgage interest,
multiply this interest by the percentage of your home used for
business. You can include interest on a second mortgage in this
computation. If your total mortgage debt is more than $1,000,000 or
your home equity debt is more than $100,000, your deduction may be
limited. For more information on what interest is deductible, see
Publication 936,
Home Mortgage Interest Deduction.
Casualty Losses
If you have a casualty loss on your home that you use for business,
treat the casualty loss as a direct expense, an indirect expense, or
an unrelated expense, depending on the property affected.
- Direct expense. If the loss is on the portion of
the property you use only in your business, use the entire
loss to figure the business use of the home deduction.
- Indirect expense. If the loss is on property you
use for both business and personal purposes, use only the
business portion to figure the deduction.
- Unrelated expense. If the loss is on property you
do not use in your business, do not use any of the loss to
figure the deduction.
If you are filing Schedule C (Form 1040), get Form 8829 and follow
the instructions for casualty losses. If you are an employee, a
partner, or you file Schedule F (Form 1040), use the worksheet near
the end of this publication. You will also need to get Form 4684,
Casualties and Thefts.
For more information on casualty losses, see Publication 547,
Casualties, Disasters, and Thefts.
Insurance
You can deduct the cost of insurance that covers the business part
of your home. However, if your insurance premium gives you coverage
for a period that extends past the end of your tax year, you can
deduct only the business percentage of the part of the premium that
gives you coverage for your tax year. You can deduct the business
percentage of the part that applies to the following year in that
year.
Rent
If you rent the home you occupy and meet the requirements for
business use of the home, you can deduct part of the rent you pay. To
figure your deduction, multiply your rent payments by the percentage
of your home used for business.
If you own your home, you cannot deduct the fair rental value of
your home. However, see Depreciating Your Home, later.
Repairs
The cost of repairs that relate to your business, including labor
(other than your own labor), is a deductible expense. For example, a
furnace repair benefits the entire home. If you use 10% of your home
for business, you can deduct 10% of the cost of the furnace repair.
Repairs keep your home in good working order over its useful life.
Examples of common repairs are patching walls and floors, painting,
wallpapering, repairing roofs and gutters, and mending leaks. However,
repairs are sometimes treated as a permanent improvement. See
Permanent improvements later under Depreciating Your
Home.
Security System
If you install a security system that protects all the doors and
windows in your home, you can deduct the business part of the expenses
you incur to maintain and monitor the system. You can also take a
depreciation deduction for the part of the cost of the security system
relating to the business use of your home.
Utilities and Services
Expenses for utilities and services, such as electricity, gas,
trash removal, and cleaning services, are primarily personal expenses.
However, if you use part of your home for business, you can deduct the
business part of these expenses. Generally, the business percentage
for utilities is the same as the percentage of your home used for
business.
Telephone.
The basic local telephone service charge, including taxes, for the
first telephone line into your home is a nondeductible personal
expense. However, charges for business long-distance phone calls on
that line, as well as the cost of a second line into your home used
exclusively for business, are deductible business expenses. You can
deduct these expenses even if the expenses for the business use of
your home do not qualify for the deduction. Deduct these charges
separately on the appropriate schedule. Do not include them in your
home office deduction.
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