The IRS Form 8829 is used by small business owners to calculate allowable expenses for the use of their home or apartment for business purposes, as well as the total amount of depreciation and allowable losses. The form is then added to Schedule C of the business owner as part of their personal tax return on Form 1040 or Form 1040-SR (for seniors).
What is Form 8829?
The IRS Form 8829 is used by small business owners to calculate allowable expenses for the use of their home or apartment for business purposes, as well as the total amount of depreciation and allowable losses. The form is then added to Schedule C of the business owner as part of their personal tax return on Form 1040 or Form 1040-SR (for seniors).
Who should fill out Form 8829?
Before you begin filling out this form, make sure that your workspace meets the eligibility requirements for this deduction. The Internal Revenue Service has two main requirements. The space must be used regularly and exclusively for business purposes. “Regularly” means that you use the space for business purposes on a continual basis (daily, weekly, monthly). “Exclusive” means that the specific space is used only for business purposes, with no personal use allowed.
What you need to fill out Form 8829?
Before filling out this form, you will need to do some preliminary work and gather some information.
Calculating Workspace
Your first task is to calculate the allowable space for business compared to the total space of your home. You will need to know the total square footage of your home and the total square footage of your workspace. Divide the square footage of the home office by the total square footage of your home to get the business use percentage. For example, if your home is 2000 square feet and your home office is 200 square feet, that equals 10%.
Direct and Indirect Expenses
You will need to consider all expenses related to the home office and categorize them into direct expenses and indirect expenses. Use the expense details from Schedule C for this purpose.
Depreciation and Casualty Losses
You will need to gather information about the depreciation of your home, specifically the value of the land and the basis (cost) of the building. If you have had a loss due to damage to your home from a federally declared disaster during the year, you may be able to deduct part of that loss as part of your home business expenses. You will need to know the amount of that loss for calculation.
How to Fill Out Form 8829
Here are the steps for filling out Form 8829. The form is complex, with many exceptions and qualifications. Get help from a licensed tax professional to ensure everything is done correctly.
Part One: The Portion of Your Home Used for Business
Part one is to calculate your home office space. In this section, you enter information about your home office space and your total home space, and calculate the business use percentage. Enter the business space to home space ratio on line 7; it will be used in several other places on the form.
Part Two: Calculating Allowable Depreciation
Part two is the main section of Form 8829, where the total depreciation of home business expenses is calculated. Enter operating expenses either as direct expenses in column (a) or as indirect expenses in column (b). Enter both types of expenses at 100%, then multiply the ratio by the total of all indirect expenses on line 24. Enter the direct expenses (“Other expenses”) on line 22. Part two also includes some other calculations, including the total allowable depreciation amount from part two and several calculations for casualty losses.
Part Three: Depreciation for Your Home
This section calculates the depreciation for the depreciation of your home based on the information you gathered about the cost. In the same way that other expenses are calculated, the depreciation amount for the home is calculated and then the business use percentage is applied.
Part
Fourth: Carrying Over Non-Deductible Expenses
If your business expenses exceed your total income from the business, your deduction for using your home for business is limited. You may be able to carry over some excess expenses to the following year.
Frequently Asked Questions (FAQs)
How can you calculate depreciation on Form 8829 if you use the home for business only part of the year?
Part of calculating depreciation involves a schedule for entering the percentage of use for individual months, depending on the month you started using your home for business during the year. For example, if you used your home for business in January, enter 2.461% (the maximum), but if you only started using your home for business in December, enter 0.107% (the minimum). You can find the schedule under line 41 in the instructions for Form 8829.
How does moving during the year affect Form 8829?
You can only deduct moving expenses for the home or business if you are a member of the Armed Forces on active duty under military orders. Otherwise, gather all your expense documentation for the year for both locations and present it to a licensed tax professional to determine what can be deducted as direct business expenses or as shared home and business expenses. Tax calculations on Form 8829 can be complex, and accounting for operating expenses and depreciation can become more complicated with multiple locations.
What are “other expenses” on Form 8829?
“Other expenses” are ordinary expenses that any business incurs; they have no relation to the tax deduction for your home business. Examples include supplies, advertising, employee wages, and payments on a business vehicle. You will need to total these other expenses from your Schedule C and include them on line 22 of Form 8829. They are used to determine the overall operating expenses to identify limits on home business deductions.
How can you fill out Form 8829 when you have roommates?
Tax law does not address who lives in the home or apartment. There are only requirements for being able to deduct your home office space to operate your small business: it must be used regularly and exclusively for business purposes. Exclusively means it cannot be used for any other purpose during the year. It must be your principal place of business if you have more than one location for that business. If you and your roommates can agree on a specific area to be reserved for business use only, measure the area and determine the percentage of your home or apartment. If the area is less than 300 square feet, you may be able to use the simplified method instead of the more complex Form 8829. Just multiply the square footage by $5 and include it on your Schedule C.
What does “recovery period” mean on Form 8829?
The recovery period for an asset (like a home used for business purposes, for example) is the number of years over which that asset can be depreciated. This time period varies for different types of assets. If you are using your home for business purposes, the recovery period for depreciation on your home business space (which is considered non-residential real estate) is 39 years.
Source: https://www.thebalancemoney.com/how-to-complete-form-8829-5210265
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