Business Expense Deductions
Business Expense Deductions
The overriding rule on home business expenses is that you may not have a loss (for tax purposes) resulting from deductions for the business use of your home. You can carry over expenses to the next year. Expenses for the home based business opportunity use of the home can be deducted in the following order:
Real estate taxes, mortgage interest and casualty losses, if any. The portion allocable to business use is deductible.
Direct expenses that benefit only the business part of the home, which include painting or repairs made directly to the specific area of the room used for business (except day-care). These direct expenses are fully deductible.
Other indirect expenses such as rent, utilities and services.
Depreciation - a portion of the value of the home and equipment used in the business is deductible. If you sell your home after taking a business deduction on the depreciation, you must recognize any capital gain or loss on that business portion regardless of whether you buy another home or not.
All expenses listed above are subject to the income limitation (no loss for tax purposes) as mentioned.
A useful IRS publication, No. 587 entitled “Business Use of Your Home,” is available. Anyone considering taking home business deductions should obtain a copy by calling the IRS toll free number at 1-800-829-1040 or talk to an accountant for up-to-date information or check the IRS website at http://ftp.fedworld.gov/pub/irs-pdf/p587.pdf
Income and expenses of a home-based business are reported on schedule C (Form 1040). Supporting schedules for depreciation, self-employment tax (social security), etc. may also be required.
