Deduction limit on expenses for the business use of your home
When your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. But if your gross income is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited.
The expenses that are limited are those that would not be deductible if you didn’t use your home for business. These expenses include insurance, utilities and depreciation that are allocable to the business. The deduction for these types of expenses is limited to an amount calculated as follows:
Your gross income from the business use of your home minus the sum of the following:
The business portion of expenses you could deduct even if you did not use your home for business. These include interest on a mortgage used to finance your home, real estate taxes, and casualty and theft losses. These are expenses that would normally be deductible as itemized deductions on Schedule A.
Business expenses directly related to your business activity at home, such as a business phone line, supplies, and depreciation on equipment that you use in your business, but not depreciation on your home itself. For purposes of calculating the deduction limitation, your deduction for one-half of your self-employment tax is not included in this item (2).
If your operating expenses for the business use of your home are limited, you can carry over the nondeductible portion to the following year. The carryover amount will be subject to the deduction limit for the next year, whether or not you are still living and working in the same home next year. You are also allowed to carry over excess casualty losses and depreciation. These carryover amounts are reported in Part IV of Form 8829 or the worksheet.