Determining the percentage of business use of your home

Once you establish that you qualify to take a deduction for the business use of your home, the next step is to calculate the percentage that you will apply to determine the amount of expense you can deduct. You can use the square footage of the area you use for work, or another reasonable method, as long as it accurately reflects your business use. For this reason, it is important to clearly identify the space you use for business.

If you are reporting your profit or loss from your business on Schedule C, you report this calculation in Part I of Form 8829, Expenses for Business Use of Your Home. If you are an employee or a partner, or you are claiming these expenses on Schedule F, Profit or Loss from Farming, you will need to complete the worksheet in IRS Publication 587, Business Use of Your Home, instead of Form 8829.

If you operate a day care facility from home and you use part of your home exclusively for daycare, you can calculate the percentage based on the space you use. If part of your home is for both daycare and personal use, you will need to determine the amount of available time you actually use that space for business. In this case, you should make two calculations. First calculate a percentage based on space, and then the percentage of time that space is available for daycare use. By multiplying the first percentage by the second, you will have the percentage to use in allocating your expenses.