If you use part of your home for your self-employed business, you may qualify for the home office deduction. This tax break can help you deduct certain expenses related to the business use of your home.
To qualify, you must meet specific IRS requirements. In most cases, the area must be used regularly and exclusively for business purposes.
Who Qualifies for the Home Office Deduction?
You may be able to claim a deduction for the business use of your home if part of your home is used for one of the following:
- Your principal place of business for a trade or business (not work performed as a W-2 employee).
- A place where you regularly and exclusively meet with patients, clients, or customers in the normal course of your business.
- The storage of inventory or product samples used in your business, if certain IRS requirements are met.
- A separate structure not attached to your home that is used exclusively and regularly for your business.
- A rental activity, subject to special rules. For more information, see IRS Publication 527.
- A qualified daycare facility.
Note: Employees generally cannot claim a home office deduction. The deduction for unreimbursed employee business expenses, including most home office expenses, is not available on federal returns for W-2 employees.
What Does "Exclusive Use" Mean?
To meet the exclusive-use test, you must use a specific area of your home only for your trade or business.
The business area can be:
- An entire room, or
- A clearly identifiable part of a room
The space does not need to be separated by a permanent wall or partition.
However, you do not qualify if the same area is used for both business and personal activities. For example, if your dining room table is used for business during the day and family meals at night, it generally does not meet the exclusive-use requirement.
There are limited exceptions for inventory storage and qualified daycare businesses.
What Does "Regular Use" Mean?
To satisfy the regular-use test, you must use the area for business on an ongoing basis.
Occasional or incidental use does not qualify. The IRS expects the space to be used consistently as part of your normal business operations.
What Is the Trade or Business Requirement?
The area must be used in connection with an actual trade or business.
Activities that are personal investments or hobbies generally do not qualify. For example, using a room to read investment reports and manage your personal portfolio does not constitute business use of the home.
If the activity is not a trade or business, you cannot claim a home office deduction.
Special Rules for Daycare Providers
You may still qualify for a home office deduction even if the space is used for personal purposes when you operate a qualifying daycare business.
To qualify, you must meet both of the following requirements:
- You are in the business of providing care for:
- Children,
- Individuals age 65 or older, or
- Individuals who are physically or mentally unable to care for themselves.
- You have:
- Applied for and received the required state license, certification, registration, or approval, or
- Been legally exempt from those requirements under state law.
You do not qualify under this exception if your application was denied or your authorization was revoked.
What Expenses Can Be Included?
If you qualify for the home office deduction, you may be able to deduct certain expenses related to your home, such as:
- Mortgage interest
- Rent
- Utilities
- Insurance
- Repairs and maintenance
- Depreciation (for homeowners)
The types and amounts of expenses you can claim depend on your situation and the method you use to calculate the deduction.
How Do I Enter Business Use of Home in the Software?
If you are filing Schedule C, Profit or Loss From Business, enter your home office information by following these steps:
- Go to Federal
- Select Income (Select my forms)
- Choose Profit and Loss From a Business (Schedule C)
- Open Business Use of Home
The software will help determine whether you qualify and calculate any allowable deduction based on the information you provide.