Can You Write Off Rent for Business?

Businesses frequently seek ways to reduce their taxable income, and deducting business expenses is a primary method. Rent paid for property used in a business is a common and often substantial expense that can typically be deducted. Understanding the specific rules and requirements for these deductions is important for business owners to accurately report their income and expenses. This guide provides an overview of how rent can be a deductible business expense, from commercial spaces to home offices.

Understanding Business Rent Deductions

Rent payments can be deducted as a business expense if they are both “ordinary and necessary” for the business operation. An ordinary expense is one that is common and accepted in a particular industry, while a necessary expense is considered appropriate and helpful for the business. The property for which rent is paid must be used for the business and cannot be property that the taxpayer owns.

The amount of rent paid must be reasonable and not excessive, especially if the landlord and tenant are related parties. If rent is paid to a related person, it is considered reasonable if it matches the amount a third party would pay for the same property. Security deposits, generally, are not immediately deductible because they are usually refundable. Leasehold improvements, which are modifications made to a rented property, are typically not expensed as rent but are instead depreciated over time.

These improvements, if they qualify as “qualified improvement property,” can sometimes be depreciated over a shorter period, such as 15 years, and may be eligible for accelerated depreciation methods like Section 179 expensing or bonus depreciation. Rent paid in advance can only be deducted for the portion that applies to the use of the rented property during the current tax year.

Qualifying Rent Payments

Rent for various types of property used exclusively or primarily for business operations typically qualifies for deduction. This includes rent paid for commercial spaces such as office buildings, retail storefronts, or manufacturing facilities.

Rent for land used in business operations, such as for agricultural use or as a storage yard, is also generally deductible. Businesses can also deduct rent paid for equipment, including machinery, vehicles, or computers, provided these items are used for business activities. Additionally, the cost of renting storage facilities for business inventory, records, or equipment is commonly deductible.

The fundamental requirement for deducting these rent payments is that the property must be actively used for the business. If rented property is used for both business and personal purposes, only the portion attributable to business use is deductible. For example, if a vehicle is rented for both business trips and personal errands, only the cost related to the business use is deductible.

Home Office Deduction Specifics

Many self-employed individuals and small business owners can deduct expenses related to using a portion of their home for business. This is known as the home office deduction, and it allows for the deduction of a portion of household costs like rent. To qualify, the space must be used exclusively and regularly for trade or business purposes. This means a specific area of the home must be used only for business, not for personal activities.

The home office must also be the taxpayer’s principal place of business. This criterion can be met if the home office is the main location where business is conducted, or if administrative and management activities are performed there and there is no other fixed location where these activities are substantially performed. For employees, the home office deduction was generally eliminated from 2018 through 2025 by tax reform, unless it was for the convenience of the employer, a condition that is rarely met.

Deductible expenses for a qualifying home office can include a percentage of rent, mortgage interest, utilities, insurance, repairs, and depreciation. There are two primary methods for calculating this deduction: the simplified option and the regular method. The simplified option allows a deduction of $5 per square foot for the business-used portion of the home, up to a maximum of 300 square feet, which results in a maximum deduction of $1,500.

This simplified method is less burdensome as it does not require tracking actual home expenses for the deduction. The regular method, however, involves calculating the actual percentage of the home used for business and applying that percentage to the total eligible expenses. This method often requires filing IRS Form 8829, “Expenses for Business Use of Your Home,” which helps determine the deductible portion of these expenses. The home office deduction cannot create or increase a net loss from the business activity, meaning the deduction is limited to the gross income from the qualified business use of the home.

Documentation and Claiming Your Deduction

Maintaining thorough and accurate records is important when claiming business rent deductions. This includes keeping lease agreements, rent receipts, canceled checks, and bank statements as proof of payment. For home office deductions, records of utility bills, insurance premiums, and other household expenses are also necessary to support the claimed amounts. These records are essential for substantiating deductions and for use in the event of an IRS inquiry or audit.

The method for reporting rent deductions varies depending on the business structure. Self-employed individuals and single-member LLCs typically report their business income and expenses, including rent, on Schedule C (Form 1040), “Profit or Loss From Business.” If claiming the home office deduction using the regular method, the calculation is performed on Form 8829, with the final deductible amount then transferred to Schedule C.

Businesses structured as corporations (e.g., C-corporations or S-corporations) report rent expenses on their respective tax forms, such as Form 1120 for C-corporations or Form 1120-S for S-corporations. Partnerships report these expenses on Form 1065, “U.S. Return of Partnership Income.” For audit preparedness, the general recommendation is to retain tax records and supporting documents for at least three years from the date the tax return was filed.