Publication 587 - Business Use Of Your Home - 2002 (Page 7 of 27) in pdf

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Your office is 20% (240 ÷ 1,200) of the total area of

the excess to the next year. They are subject to the deduc-

your home.

tion limit for that year, whether or not you live in the same

•

home during that year.

Your business percentage is 20%.

Figuring the deduction limit and carryover. If you are

Example 2.

an employee, a partner, or file Schedule F (Form 1040),

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You use one room in your home for business.

use the worksheet near the end of this publication to figure

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your deduction limit and carryover. If you file Schedule C

Your home has four rooms, all of about equal size.

(Form 1040), figure your deduction limit and carryover on

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Your office is 25% (1 ÷ 4) of the total area of your

Form 8829.

home.

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Example. You meet the requirements for deducting ex-

Your business percentage is 25%.

penses for the business use of your home. You use 20% of

your home for this business. In 2002, your business ex-

Use lines 1 –7 of Form 8829, or lines 1 – 3 on the

penses and the expenses for the business use of your

TIP

worksheet near the end of this publication, to

home are deducted from your gross income in the follow-

figure your business percentage.

ing order.

Gross income from business . . . . . . . . . . . . . . . . . . . . .

$6,000

Part-Year Use

Less:

Deductible mortgage interest and real estate taxes (20%)

3,000

You cannot deduct expenses for the business use of your

Business expenses not related to the use of your home

(100%) (business phone, supplies, and depreciation on

home incurred during any part of the year you did not use

equipment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,000

your home for business purposes. For example, if you

Deduction limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,000

begin using part of your home for business on July 1, and

Less other expenses allocable to business use of home:

Maintenance, insurance, and utilities (20%) . . . . . . . . . .

800

you meet all the tests from that date until the end of the

Depreciation allowed (20% = $1,600 allowable, but

year, consider only your expenses for the last half of the

subject to balance of deduction limit) . . . . . . . . . . . . . .

200

year in figuring your allowable deduction.

Other expenses up to the deduction limit . . . . . . . . . . . . .

$1,000

Depreciation carryover to 2003 ($1,600 − $200) (subject

to deduction limit in 2003) . . . . . . . . . . . . . . . . . . . . . . .

$1,400

Deduction Limit

You can deduct all of the business part of your deducti-

If your gross income from the business use of your home

ble mortgage interest and real estate taxes ($3,000). You

equals or exceeds your total business expenses (including

also can deduct all of your business expenses not related

depreciation), you can deduct all your business expenses

to the use of your home ($2,000). Additionally, you can

related to the use of your home. If your gross income from

deduct all of the business part of your expenses for mainte-

the business use of your home is less than your total

nance, insurance, and utilities, because the total ($800) is

business expenses, your deduction for certain expenses

less than the $1,000 deduction limit. Your deduction for

for the business use of your home is limited.

depreciation for the business use of your home is limited to

Your deduction of otherwise nondeductible expenses,

$200 ($1,000 minus $800) because of the deduction limit.

such as insurance, utilities, and depreciation (with depreci-

You can carry over the $1,400 balance and add it to your

ation taken last), allocable to the business, is limited to the

gross income from the business use of your home minus

depreciation for 2003, subject to your deduction limit in

the sum of the following.

2003.

1) The business part of expenses you could deduct

More than one place of business. If part of the gross

even if you did not use your home for business (such

income from your trade or business is from the business

as mortgage interest, real estate taxes, and casualty

use of part of your home and part is from a place other than

and theft losses that are allowable as itemized de-

your home, you must determine the part of your gross

ductions on Schedule A (Form 1040)). These ex-

penses are discussed in detail under Deducting

income from the business use of your home before you

Expenses, later.

figure the deduction limit. In making this determination,

consider the time you spend at each location, the business

2) The business expenses that relate to the business

investment in each location, and any other relevant facts

activity in the home (for example, business phone,

and circumstances.

supplies, and depreciation on equipment), but not to

the use of the home itself.

If your home office qualifies as your principal

TIP

place of business, you can deduct your daily

If you are self-employed, do not include in (2) above your

transportation costs between your home and an-

deduction for half of your self-employment tax.

other work location in the same trade or business. For

more information on transportation costs, see Publication

Carryover of unallowed expenses. If your deductions

are greater than the current year’s limit, you can carry over

463, Travel, Entertainment, Gift and Car Expenses.

Page 7

Publication 587 - Business Use Of Your Home - 2002 Page 7

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