Business Expense Deductions
The overriding rule on best home businesses from home 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
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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 best home businesses from home 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.
