Business Use Of Home - 2021 | Best Guide - CPA Clinics
Some expenses are deductible whether or not you use your home for business. Others are deductible only if the home is used for business.
* Deductible as an itemized deduction, subject to limitation.
* Deductible as a business expense pro-rated for the amount of the business use of home.
Expenses that benefit only the area exclusively used for business, such as painting or repairs in the home office, are direct expenses that are fully deductible.
Expenses for keeping up and running the entire home, such as insurance, utilities, and general repairs, are indirect expenses that are deductible based on the percentage of the home used for business.
Expenses for the part of the home not used for business, such as lawn care or painting a room not used for business, are unrelated expenses that are not deductible.
Telephone The basic local telephone service for the first telephone line is nondeductible even if it is used for business. Any additional charges for long distance or a second line into the home used for business are deductible. Any deductible telephone costs are not included as business use of home cost.
A qualified home office is considered nonresidential real property depreciable over 39 years. For home office depreciation, the basis in the home is the smaller of:
OR
Permanent improvements prior to using the home for business are added to the basis of the home and depreciated as part of the adjusted basis of the home. The cost of improvements made after using the home for business that affect the area of the home used for business are depreciated separately
Example: Rita had a new roof put on her home in 2005. She first used her home for business in 2009. She also replaced her furnace in 2021. The cost of the new roof from 2005 is added to the basis of her home, and the business portion is depreciated over 39 years, starting in 2009. The business portion of the furnace cost is depreciated as a separate asset over 39 years, starting in 2021.
The business percentage equals the area of the part of the home used for business divided by the area of the whole house. Any reasonable method may be used to determine the business percentage
The following are two common methods.
Do not include home expenses in the business use equation for any period during the year where the home was not used for business.
The business percentage of an area exclusively used for business in a day care facility is calculated under the business percentage method above. For the portion of the home regularly used, but not exclusively used for the day care business, multiply that portion by the business percentage of time.
