IRS Form 8829 is where you can claim the regular home office deduction and calculate other expenses related to using a home for business.
- Form 8829, Expenses for Business Use of Your Home, allows you to calculate the percentage of your home used for business and other allowable related expenses.
- Taking the simplified home office deduction is much easier, but you won’t list actual expenses or take a home depreciation deduction.
Some taxpayers may report expenses related to using a home for their business on IRS Form 8829, leading to the home office deduction. These expenses may include maintenance costs paid in association with running a business from home, among others.
While the IRS set up another method for calculating these deductions—the simplified home office deduction—it’s still helpful to understand when you would need to use the form and how it allows you to calculate everything.
This guide walks through the Form 8829 basics, including the expenses and the eligibility requirements.
What is IRS Form 8829?
IRS Form 8829, Expenses for Business Use of Your Home, may be used to calculate allowable expenses related to using your home for business purposes. This form is what you use if you’re taking on the regular method of claiming the home office deduction.
Form 8829 is typically used by small business owners and self-employed taxpayers who work from home and run business operations there most or all of the time. You are allowed to deduct business expenses related to a part of your home only if it is exclusively used on a regular basis:
- As your principal place of business
- As a place of business used by customers, clients, or patients as part of the normal course of the business
- In connection with the business, if it is a separate, unattached structure from the home
Factors that qualify a home as a principal place of business include whether you use it exclusively and regularly for administrative or management activities and don’t have any other fixed location where you conduct these business activities. These guidelines also mean that if you use a workspace that also doubles as a bedroom, kitchen, living space, or another purpose, it does not qualify as exclusively used for the business.
According to the IRS Form 8829 instructions, you cannot use the form if you:
- Are a partner, or are claiming the expenses on Schedule F of Form 1040
- The business expenses are properly allocable to inventory costs (use Schedule C, Part III instead)
- You have elected to use the simplified method for the home for this tax year
Keep records like photos of the space and documentation of measurements, and make sure everything is dated for later reference. Sometimes a home’s real estate records will have accurate square footage that you can reference and save. These records can help in subsequent tax filings or if the IRS has any questions about Form 8829 calculations.
How to calculate using Form 8829
The first step when you’re ready to use Form 8829 is calculating the portion of the home used for business operations. In Part I, you provide the total area of the house and the area of the dedicated workspace or room and divide the work area by the home area. The form asks that you enter the result as a percentage.
So, for example, if the business space is 300 square feet and your home’s total area is 1,500 square feet, the office takes up 20% of the residence.
Part II figures out the allowable deduction. You’ll enter the Schedule C, line 29 amount plus “any gain derived from the business use of your home” and minus “any loss from the trade or business not derived from the business use of your home.” Then, report direct and indirect expenses, including casualty losses, deductible mortgage interest, and real estate taxes. Multiply the total by your home use percentage on line 7.
Next, you add up these direct and indirect expenses:
- Excess mortgage interest
- Excess real estate taxes
- Repairs and maintenance
Multiply the sum by line 7 again. You then calculate home depreciation in Part III and report carryover of unallowed expenses in Part IV. These last two sections are a bit more complicated. So, if you’re not using software, it’s a good idea to talk to a tax expert about the calculations.
What about the simplified home office deduction?
Because Form 8829 can get a bit complicated with expense and home-area calculations, many self-employed taxpayers decide to go with the simplified home office deduction. Just as with the regular deduction, the simplified version can only be claimed by workers who don’t receive a W-2 as a regular employee. You don’t have to own the home to qualify for the deduction (simple or regular).
The simplified option makes calculations and recordkeeping requirements far easier. It takes a standard deduction of $5 per square foot of your home with a maximum of 300 square feet, and eligible home-related itemized deductions are claimed on Schedule A. There isn’t a home depreciation deduction with this method.
So, while the simplified method is much easier for business owners, use the regular method if you’d rather enter actual expenses and deduct depreciation on the portion of the home used for business.
Working with a qualified CPA
If you’re self-employed or run your small business from home, there are numerous tax considerations to manage each year. Taking the home deduction and submitting the correct forms is just a portion of your obligations throughout the year, including paying estimated taxes and keeping proper records.
If you have questions, be sure to consult a qualified CPA with experience helping business owners develop effective tax strategies.
Provident CPA and Business Advisors helps our clients pay the least amount of tax legally possible while assisting business owners as they implement comprehensive growth strategies. Contact our experienced team to learn more about our services.