This form is used if you are self-employed and use part of your home for your business. It calculates the expenses related to the business use of your home and potentially deducts these costs from your business income.
- Part I — Part of Your Home Used for Business: This section calculates the percentage of your home used for your business. This is typically done by comparing the square footage of the area used exclusively for business to the total square footage of your home.
- Part II — I Figure Your Allowable Deduction: This includes both direct expenses (expenses that apply only to the business part of your home, like painting the office area) and indirect expenses (expenses for the entire home, which need to be allocated based on the percentage calculated in Part I). Here you list any direct expenses — these are costs that relate only to the part of your home you use for your business, like painting or repairs in that area.
- Part III — Depreciation of Your Home: Calculate the amount of depreciation you can claim for the business use of your home, which effectively represents the wear and tear on your home from using it for business. It's based on the cost or other basis of your home, the recovery period set by law, and the percentage of your home used for business.
- Part IV — Carryover of Unallowed Expenses to 20XX: This section is for expenses not allowed this year, but which may be carried over into the next tax year. This is because the deduction for your home office is limited to the net income from your business. If your deduction is limited, you can carry over the unused portion to the next tax year.