What Is Form 8829?
IRS Form 8829 is used by small business owners to calculate the allowable expenses for business use of their home or apartment and total the amount of allowable deductions for operating expenses and losses. The form then is added to the business owner’s Schedule C as part of their personal tax return on Form 1040 or Form 1040-SR (for seniors).
Who Should Fill Out Form 8829?
Before you begin to fill out this form, make sure your business space qualifies for this deduction. The IRS has two basic requirements. The space must be used both regularly and exclusively for business purposes. “Regular” means you use the space for business purposes on a continuing basis (daily, weekly, monthly). “Exclusive” means that the specific area is used only for business purposes, with no personal use allowed. The space must also be your principal place of business, either your only place of business, or the place where you regularly and exclusively use the space for administrative or management activities.
Simplified Option
You may not need to complete Form 8829 if you have a small home business space. A simplified option is available that allows you to calculate the square footage of your business space, up to 300 square feet, and multiply it by $5 a square foot to get the deduction amount, up to $1,500. This calculation goes directly onto your Schedule C. The same eligibility requirements apply.
What You Need To Fill Out Form 8829
Before you fill out this form, you’ll need to do some preliminary work and gather some information.
Business-Space Calculation
Your first task is to calculate the allowable business space compared with the total space of your home. You’ll need to know the total square footage of your home and the total square footage of the business space. Divide the home business space by the total area of your home to get a percentage of business use. For example, if your home is 2,000 square feet and your home business space is 200 square feet, that’s 10%.
Direct and Indirect Expenses
You will need to look at all of your home business-space deductions and separate them into direct expenses and indirect expenses. Use the details on expenses from your Schedule C for this purpose. Some direct expenses (called “other expenses” on Form 8829) are those only for the business. These expenses include regular business expenses such as advertising, legal fees, and payments to employees or independent contractors that any business would have. These expenses aren’t entered on Form 8829; they are included elsewhere in your Schedule C. Other direct expenses are home expenses that benefit only the business part of your home. Some examples might be painting the specific area, upgrading the lighting in the room, or installing a separate internet service or an entryway for customers. Indirect expenses are those shared by the business space and the rest of the home. This is where the percentage comes in. Some shared expenses are utilities, mortgage interest, and general home repairs.
Depreciation and Casualty Losses
You’ll need to gather information on depreciation for your home, specifically the value of the land and the basis (cost) of the building. If you had a casualty loss to your home from a federally declared disaster during the year, you may be able to deduct a part of that loss as part of your home business costs. You will need the amount of that loss for the calculation.
How To Fill Out Form 8829
Here are the steps in filling out Form 8829. The form is complicated, with many exceptions and qualifications. Get help from a licensed tax professional to make sure everything is done correctly.
Part I: Part of Your Home Used for Business
Part I is the calculation of the home office space. This section is where you enter the information on your home business space and your total home space, and calculate the home business percentage. Enter the percentage of business space to home space on Line 7; it will be used in several other places in the form.
Part II: Figure Your Allowable Deduction
Part II is the main part of Form 8829, where you calculate the total home business expense deduction. First, enter operating expenses as either direct expenses in Column (a) or indirect expenses in Column (b). Enter both types of expenses at 100%, then apply the percentage to the total of all indirect expenses on Line 24. Enter direct expenses (“other expenses”) on Line 22. Part II also includes some other calculations, including a total allowable amount for depreciation from Part II and several calculations for casualty losses.
Part III: Depreciation of Your Home
This section calculates the business deduction for depreciation on your home based on the information you gathered about the cost. In the same way as other expenses, the amount of depreciation is calculated for the home, then the home business percentage is applied.
Part IV: Carryover of Unallowed Expenses
If your business expenses are greater than your gross income from the business, your deduction for business use of your home is limited. You may be able to carry over some of the excess expenses into the next year.
It must be used both regularly and exclusively for business purposes. Exclusively means that it can’t be used for any other purpose during the year.It must be your principal place of business if you have more than one location for this business.
If you and your roommates can agree on a space to reserve for your business use only, measure the space and determine what percentage of your home or apartment it is. If the space is less than 300 square feet, you may be able to use the simplified method instead of using the more complicated Form 8829. Just multiply the square footage by $5 and include it on your Schedule C.
