Home Office Deduction - How to Prepare Form 8829

If you are a Sole Proprietor who wants to take the home office deduction, you must file Form 8829, Expenses for Business Use of Your Home. The purpose of this article is to help you prepare this form without getting a headache.

This article makes three assumptions about your business:
1. Your Sole Proprietorship is not an in-home daycare facility.
2. Your business has a profit that is greater than your home office deduction.
3. You do not have any home casualty losses to deduct.

Here's a list of the information you need to properly complete Form 8829. After each item is the line on the form where that number is reported.

1. Square footage of your home office (Line 1)
2. Square footage of your entire home (Line 2)
3. Mortgage interest from Form 1098. Your lending institution is required to send you this by January 31. (Line 10)
4. Real estate taxes on your home (Line 11)
5. Homeowner's insurance premium. For both real estate taxes and homeowner's insurance, if you pay these as part of your monthly mortgage payment, these amounts should be reported on Form 1098. If you pay either the taxes or insurance yourself, then you'll need to track down those amounts in your checkbook register. (Line 17)
6. Rent payments, if you are renting rather than buying your home. (Line 18)
7. Repairs and maintenance expenses. This can include the typical expenses most homeowner's incur to keep their home in good shape, such as fixing a plumbing problem or repairing the water heater or furnace when they break down. Just be careful not to include major improvement projects like a new roof or bathroom remodel. Those are not considered repairs or maintenance. (Line 19)
8. Utilities expenses. This includes electricity, gas, water, sewer service, and trash disposal. It does not include telephone service. (Line 20)
9. Other expenses, such as neighborhood association dues and other miscellaneous household-related expenses not mentioned already. (Line 21)

After you put the square footage amount on Lines 1 and 2, you will divide Line 1 by Line 2 to calculate the business use percentage on Line 3. Then carry the Line 3 amount down to Line 7. This percentage is what determines how much of the various expenses will actually become a deductible business expense. For example, if you have a 150 square foot office and a 1,500 square foot home, your home office occupies 10% of your home and so you will get to deduct 10% of all the expenses listed above.

The next step is to list all those expenses on the various lines listed above, using column (b) Indirect expenses. Then you add up all those expenses on Line 22 and then multiply that total by the business use percentage from Line 7, putting the result on Line 23. The Line 23 amount is then carried down to Line 35, and then you transfer the Line 35 amount to Schedule C, Line 30.

For more information on preparing Form 8829, visit the IRS website at http://www.irs.gov/instructions/i8829/index.html.


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Wayne Davies is the Internet's Top Tax Preparer and author of 3 ebooks on tax deduction strategies for small business owners and the self-employed. For a free copy of his Special Report, "How To Instantly Double Your Small Business Tax Deductions" visit YouSaveOnTaxes.