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How to Deduct expenses for Business use of a Home on Schedule C?

There are three types of expenses that taxpayers are allowed to include on their Schedule C for office-in-home deductions: Direct, Indirect, and Unrelated expenses. The taxpayer is entitled to deduct expenses for business use of a home on Schedule C, which needs to be filed on the 8829 form. When using the form 8829 the taxpayer must determine the business percentage of the home. When the taxpayer itemized deductions, certain expenses are deductible whether the operation is business or personal.

Keep in mind, the expenses that are itemized on Schedule C such as real estate taxes, deductible mortgage interest, and casualty losses are subject to limits on Schedule A that do not apply to the business percentages amount deducted on Schedule C.

Depreciation for home office

IRS allows taxpayers to claim depreciation for the "wear and tear" of the home when used for business activities. The Taxpayer cannot depreciate the cost or value of the property.

How to calculate the depreciation deduction?

  • When did business activity start?

  • The fair market value of the home at the time of the business (Adjusted basis).

  • The cost of home improvement before and after the business activities started.

  • The percentage of the home used for business activities.

To learn more on how to apply these deductions on your upcoming 2020 tax return, contact a tax expert such as Direct Point Accountant Firm.


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