Example of Home Office Deduction Computation
Steps for computing the home office deduction
- First, complete Schedule C.
- Check Schedule C, Line 29, Tentative profit or (loss).
- If line 29 is zero or if it shows a loss, STOP, you may not take the home office deduction or use it to increase a business loss.
- If Schedule C, Line 29 shows a Tentative profit, complete Form 8829 to compute the home office deduction.
- Enter your deduction on Line 34 of Form 8829, then carry it to Schedule C, Line 30.
- On Schedule C, subtract the home office deduction shown on line 30 from Line 29 and enter the result on Line 31.
- Finally, carry the amount from Schedule C, Line 31 to Form 1040, Line 12.
In this example, the Home Office Deduction zeros out Schedule C net profit.
The example assumes you own your home and use 20% of its total square feet for your home office (400 S.F/2,000 S.F.). In addition, Schedule C and Line 29 shows a Tentative profit $3,900
- Your first step is to complete Form 8829, Part II.
- You enter the $3,900 "Tentative profit" from Line 29 of Schedule C, on Line 8 on Form 8829.
- The first category of items subtracted from Tentative profit include:
- Total annual mortgage interest: $9,000 x 20% = $1,800
- Total annual property taxes: $2,000 x 20% = $400
- Second category of items to subtract from remaining Tentative profit:
- Insurance: $800 x 20% = $160
- Utilities: $1,200 x 20% = 240
- Last item to deduct from remaining Tentative profit:
- Depreciation on office office portion of the house: $1,400
|1||Enter Tentative profit from Schedule C, Line 29||$3,900|
|2||First Category of Items Deducted from Tentative Profit:|
|Deductible mortgage interest: $1,800 (20% x $9,000)
Note: The remaining $7,200 (80% x $9,000) is deducted on Schedule A as an itemized deduction
|Real estate taxes: $400 (20% x $2,000).
Note: The remaining $1,600 (80% x $2,000) is deducted on Schedule A as an itemized deduction.
|3||Total-Mortgage interest plus real estate taxes($1,800 + 400)||($2,200)|
|4||Remaining tentative profit - ($3,900 minus $2,200)||$1,700|
|Next Category of Items Deducted from Remaining Tentative Profit:|
|Insurance: $160 (2-% x $800)||$160|
|Utilities: $240 (20% x $1,200)||$240|
|5||Total-Insurance plus utilities ($160 + $240)||($400)|
|Remaining tentative profit - ($1,700 minus $400)||$1,300|
|6||Last Item Deducted from Remaining Tentative Profit is Depreciation:
Depreciation deducted from the remaining tentative profit.
|Remaining Tentative profit ($1,300 minus $1,300)
Form 1040, Line 12, Business income or(loss) is zero. Attach Schedule C and Form
For Freelancers and independent Contractors
- Organize your financial data into one central accounting system on the cloud
- Software kept up to date.
- Your data kept secure
- Anytime, anywhere data access.
- Pay your quarterly estimated taxes online.
- Export Schedule C to TurboTax at year-end for faster filing.
- Save up to 50% off QuickBooks Self-Employed. Track every deduction! Start your free trial now!
Have an accounting or bookkeeping question? Email it to me.
- Return to the Business Deductions Table of Contents to find related links