Instructions for Form 8829 |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
To determine the area on lines 1 and 2, you can use square feet or any other reasonable method if it accurately figures your
business percentage on
line 7.
Do not include on line 1 the area of your home you used to figure any expenses allocable to inventory costs. The business
percentage of these
expenses should have been taken into account in Schedule C, Part III.
Special Computation for Certain Daycare Facilities
If the part of your home used as a daycare facility included areas used exclusively for business as well as other areas used
only partly for
business, you cannot figure your business percentage using Part I. Instead, follow these three steps:
-
Figure the business percentage of the part of your home used exclusively for business by dividing the area used exclusively
for business by
the total area of the home.
-
Figure the business percentage of the part of your home used only partly for business by following the same method used in
Part I of the
form, but enter on line 1 of your computation only the area of the home used partly for business.
-
Add the business percentages you figured in the first two steps and enter the result on line 7. Attach your computation and
enter “See
attached computation” directly above the percentage you entered on line 7.
Enter the total number of hours the facility was used for daycare during the year.
Example.
Your home is used Monday through Friday for 12 hours per day for 250 days during the year. It is also used on 50 Saturdays
for 8 hours per day.
Enter 3,400 hours on line 4 (3,000 hours for weekdays plus 400 hours for Saturdays).
If you started or stopped using your home for daycare in 2006, you must prorate the number of hours based on the number of
days the home was
available for daycare. Cross out the preprinted entry on line 5. Multiply 24 hours by the number of days available and enter
the result.
If all the gross income from your trade or business is from the business use of your home, enter on line 8 the amount from
Schedule C, line 29,
plus any net gain or (loss) derived from the business use of your home and shown on Schedule D or Form 4797. If you file more
than one Form 8829,
include only the income earned and the deductions attributable to that income during the period you owned the home for which
Part I was completed.
If some of the income is from a place of business other than your home, you must first determine the part of your gross income
(Schedule C, line 7,
and gains from Schedule D and Form 4797) from the business use of your home. In making this determination, consider the amount
of time you spend at
each location as well as other facts. After determining the part of your gross income from the business use of your home,
subtract from that amount
the total expenses shown on Schedule C, line 28, plus any losses from your business shown on Schedule D or Form 4797. Enter
the result on Form 8829,
line 8.
Enter as direct or indirect expenses only expenses for the business use of your home (that is, expenses allowable only because
your home is used
for business). If you did not operate a business for the entire year, you can deduct only the expenses paid or incurred for
the portion of the year
you used your home for business. Other expenses not allocable to the business use of your home, such as salaries, supplies,
and business telephone
expenses, are deductible elsewhere on Schedule C and should not be entered on Form 8829.
Direct expenses benefit only the business part of your home. They include painting or repairs made to the specific area or
rooms used for business.
Enter 100% of your direct expenses on the appropriate line in
column (a).
Indirect expenses are for keeping up and running your entire home. They benefit both the business and personal parts of your
home. Generally, enter
100% of your indirect expenses on the appropriate line in
column (b).
Exception.
If the business percentage of an indirect expense is different from the percentage on line 7, enter only the business
part of the expense on the
appropriate line in column (a), and leave that line in column (b) blank. For example, your electric bill is $800 for lighting,
cooking, laundry, and
television. If you reasonably estimate $300 of your electric bill is for lighting and you use 10% of your home for business,
enter $30 on line 20 in
column (a). Do not make an entry on line 20 in column (b) for any part of your electric bill.
Enter only the amounts that would be deductible whether or not you used your home for business (that is, amounts allowable
as itemized deductions
on Schedule A (Form 1040)).
Treat casualty losses as personal expenses for this step. Figure the amount to enter on line 9 by completing Form 4684, Section
A. When figuring
Form 4684, line 19, enter 10% of your adjusted gross income excluding the gross income from business use of your home and
the deductions attributable
to that income. If your loss occurred after August 24, 2005, and was the result of Hurricane Katrina, enter zero on line 19
of Form 4684. Include on
Form 8829, line 9, the amount from Form 4684, line 21. See Line 28 on page 3 to deduct part of the casualty losses not allowed because of
the limits on Form 4684.
Do not file or use that Form 4684 to figure the amount of casualty losses to deduct on Schedule A. Instead, complete a separate
Form 4684 to deduct
the personal portion of your casualty losses.
On line 10, include only mortgage interest that would be deductible on Schedule A and that qualifies as a direct or indirect
expense. Do not
include interest on a mortgage loan that did not benefit your home (for example, a home equity loan used to pay off credit
card bills, to buy a car,
or to pay tuition costs).
If you itemize your deductions, be sure to claim only the personal portion of your deductible mortgage interest and real estate
taxes on Schedule
A. For example, if your business percentage on line 7 is 30%, you can claim 70% of your deductible mortgage interest and real
estate taxes on Schedule
A.
If the amount of home mortgage interest you deduct on Schedule A is limited, enter the part of the excess mortgage interest
that qualifies as a
direct or indirect expense. Do not include mortgage interest on a loan that did not benefit your home (explained earlier).
If you rent rather than own your home, include the rent you paid on line 18, column (b). 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.
Include on this line any 2006 operating expenses not included on lines 9 through 20.
Multiply your casualty losses in excess of the amount on line 9 by the business percentage of those losses and enter the result.
If your home was used in more than one business, allocate the amount shown on line 35 to each business using any method that
is reasonable under
the circumstances. For each business, enter on Schedule C, line 30, only the amount allocated to that business.
Enter on line 36 the cost or other basis of your home (including land), or, if less, the fair market value of your home on
the date you first used
the home for business. Do not adjust this amount for depreciation claimed or changes in fair market value after the year you
first used your home for
business.
Enter on line 37 the cost or other basis of the land on which your home sits, or, if less, the fair market value of the land
on the date you first
used the home for business. Do not adjust this amount for changes in fair market value after the year you first used your
home for business.
Attach your own schedule showing the cost or other basis of additions and improvements, used at least partially for business,
that were placed in
service after you began to use your home for business. Do not include any amounts on lines 36 through 39 for these expenditures.
Instead, see the
instructions for line 41.
At the time these instructions went to print, Congress was considering legislation that would reinstate the special tax treatment
for qualified
Indian reservation property (which expired for property placed in service after 2005). If this tax treatment is reinstated
and your home is qualified
Indian reservation property and you first used your home for business after May 12, 1993, and before 2006, then you must see
Pub. 946, How To
Depreciate Property, to figure the depreciation. To find out if this legislation was enacted, and for more details, go to
www.irs.gov, click on More Forms and
Publications , and then on What's Hot in forms and publications , or see Pub. 553, Highlights of 2006 Tax Changes.
If no additions and improvements were placed in service after you began using your home for business, multiply line 39 by
the percentage on line
40. Enter the result on lines 41 and 29.
At the time these instructions went to print, Congress was considering legislation that would reinstate the special tax treatment
for qualified
Indian reservation property (which expired for property placed in service after 2005). If this tax treatment is reinstated
and your home is qualified
Indian reservation property and your additions and improvements were placed in service after May 12, 1993, and before 2006,
then you must see Pub.
946, How To Depreciate Property, to figure the depreciation. To find out if this legislation was enacted, and for more details,
go to
www.irs.gov, click on More Forms and
Publications , and then on What's Hot in forms and publications , or see Pub. 553, Highlights of 2006 Tax Changes.
Attach a schedule showing your computation and include the amount you figured in the total for line 41. Enter “See attached” below the entry
space.
Complete and attach Form 4562, Depreciation and Amortization, only if:
-
You first used your home for business in 2006, or
-
You are depreciating additions and improvements placed in service in 2006.
If you first used your home for business in 2006, enter the amounts from Form 8829, lines 39 and 41, in columns (c) and (g)
of line 19i, Form 4562.
In column (b) of line 19i, enter the month and year you first used your home for business. Do not include the amount from
Form 8829, line 41, on
Schedule C, line 13.
If you are depreciating additions and improvements placed in service in 2006, enter in column (b) of line 19i on Form 4562
the month and year the
additions or improvements were placed in service. Enter the business basis of the additions or improvements in column (c)
and the depreciation
allowable on the additions or improvements in column (g). Do not include the amount entered in column (g) on Schedule C, line
13.
If your expenses are greater than the current year's limit, you can carry over the excess to 2007. The carryover will be subject
to the deduction
limit for that year, whether or not you live in the same home during that year.
Figure the amount of operating expenses you can carry over to 2007 by subtracting line 26 from line 25. If the result is zero
or less, you have no
amount to carry over.
Figure the amount of excess casualty losses and depreciation you can carry over to 2007 by subtracting line 32 from line 31.
If the result is zero
or less, you have no amount to carry over.
Paperwork Reduction Act Notice.
We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required
to give us the information.
We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid
OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may
become material in the
administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by
section 6103.
The average time and expenses required to complete and file this form will vary depending on individual circumstances.
For the estimated averages,
see the instructions for your income tax return.
If you have suggestions for making this form simpler, we would be happy to hear from you. See the instructions for
your income tax return.
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