How to File Form 8829 for Your Home Office

Form 8829, “Expenses for Business Use of Your Home,” is a tax document used by self-employed individuals to calculate and claim deductions related to their home office. This form supports the “actual expense method,” which involves itemizing individual costs, as opposed to the simplified option that uses a standard rate per square foot. Its purpose is to determine the portion of your home expenses that can be attributed to your business activities, thereby reducing taxable income for freelancers, independent contractors, and other sole proprietors.

Determining Eligibility for the Deduction

To claim the home office deduction using Form 8829, you must satisfy two primary tests. The first is the “regular and exclusive use” test. This means a specific area of your home must be used solely for conducting business on an ongoing basis. For example, a spare room used only as an office qualifies, but a dining room table where you also eat meals does not meet the exclusive use standard.

The second requirement is the “principal place of business” test. Your home office must be the main location where you conduct your business activities. This could mean it’s where you perform management or administrative tasks, meet with clients, or store inventory. For instance, a plumber who uses a home office for billing and scheduling, even though the primary work is done at customer locations, would likely meet this test for administrative activities.

This deduction is not available to W-2 employees. It is reserved for self-employed individuals who report their business income and expenses on Schedule C (Form 1040).

Information and Calculations for Form 8829

Calculating Your Business Use Percentage (Part I)

Before deducting expenses, you must determine the portion of your home used for business by calculating your business use percentage. The most common method is to divide the square footage of your home office by the total square footage of your home. For example, if your office is 200 square feet and your home is 2,000 square feet, your business use percentage is 10%. This percentage will be applied to all of your indirect home expenses to determine the deductible business portion.

Identifying Direct and Indirect Expenses (Part II)

You must categorize your expenses as either direct or indirect. Direct expenses are costs that apply only to your home office space, such as the cost of painting just the office or repairs made solely to that area. These expenses are 100% deductible.

Indirect expenses are costs associated with maintaining and running your entire home. The business use percentage you calculated is applied to these totals to allocate the appropriate share to your business. These include:

• Mortgage interest
• Homeowners insurance
• Property taxes
• Rent
• Utilities
• General home repairs

Understanding Depreciation (Part III)

Depreciation is a deduction that allows you to recover the cost of your home over time, but only the portion used for business. For depreciation purposes, you must determine the value of your home. This is generally the lesser of the home’s adjusted basis (its cost plus improvements, minus any casualty losses) or its fair market value at the time you began using it for business.

You cannot depreciate the value of the land your home sits on, only the structure itself. The IRS specifies a standard depreciation period of 39 years for a home office, using the straight-line method.

Completing and Filing Form 8829

Your total expenses are subject to a deduction limit, which is based on the gross income from your business. If your home office expenses are greater than your business’s income for the year, you may not be able to deduct the full amount in the current year.

Any expenses that you cannot deduct due to income limitations are not lost. These unallowed expenses can be carried forward and potentially deducted in a future tax year when you have sufficient business income.

The final step is to transfer the total allowable deduction to your Schedule C (Form 1040). You must then attach the completed Form 8829 to your federal tax return.