Form 8829 is used by Schedule C filers to figure the allowable expenses for business use of a home and any carryover to 2011 of amounts not deductible in the 2010 tax year. Form 8829 is designed for self-employed sole proprietors who run their own businesses at least in part from their homes. (As we explain below, we have designed Form 8829 so that employees with a home office may use Form 8829 to figure their allowable home office expenses (see Form 8829, line 35) and to carry those expenses to Form 2106, line 4e, or Form 2106-EZ, line 4e.)
Those taxpayers who file Schedule C should deduct pure business expenses--employees' salaries, for example--on Schedule C. Form 8829 is for deducting other expenses--like heat, light, and repairs--that benefit your business but also benefit your home.
Expenses that benefit your business but also benefit your home include depreciation. You would be living in your home, and it would be depreciating, whether or not you had an office there. You can deduct expenses that relate to your home on Form 8829--but only if your use passes certain tests.
Some bills that you pay, like utilities, cover your entire house, not just the office portion. In order to calculate the business portion, we have to prorate these expenses.
If you paint the entire house, including the office, the painting would be an "indirect expense." If you enter the full cost of painting in the column labeled "Indirect Expense," we'll automatically allocate, at the appropriate place, a portion to your home office on the basis of the percentage amount calculated on line 7.
As mentioned above, Form 8829, as designed by the IRS, relates specifically to Schedule C and is for use by self-employed sole proprietors. The tax law principles are the same, though, for the home offices of employees, so we designed our version of Form 8829 to allow employees to use it as well.
The key to the form's layout in Part II is the rule that, overall, you're not allowed to deduct more home office expenses than you had income from this business.
But if you have more expenses than income, the rule comes into play. At that point, it begins to matter "which" expenses are deducted.
Let's see how this works with an example. Suppose you have $500 of income and $900 of expenses, categorized as follows:
Income of $500
Mortgage Interest of $300
Utilities of $300
Depreciation of $300
You can only deduct $500 of expenses because of the income limit. Notice that the mortgage interest is deductible on Schedule A in any event. So, using the numbers above, what you would want to do (but are not allowed to do) is to add the utilities on Form 8829 ($300) to the depreciation on Form 8829 ($200) to get a total on Form 8829 of $500. To that total, you would like to add the mortgage interest on Schedule A ($300) to get a total deduction amount of $800.
But guess what! You can't do it that way. The tax law requires you to allocate in this way:
Mortgage on Form 8829 ($300);
+ Utilities on Form 8829 ($200);
+ Depreciation on Form 8829 ($0);
These three amounts give you a total on Form 8829 of $500. To that $500, you may add the mortgage interest on Schedule A ($0) (guess what! because all the mortgage interest has been used up on Form 8829, there is none left for you to deduct on Schedule A) to arrive at a total deduction amount of $500.
The need to deduct the Schedule A expenses "first" explains why the form lists mortgage interest, casualty losses, and real estate taxes first (see lines 9a, 9b, 10a , 10b, 11a, and 11b). It also explains why the form splits mortgage interest and casualty losses into two parts--one part for interest and casualty that are otherwise deductible (to be listed here first), and a second part for mortgage interest and casualty losses that are not otherwise deductible (to be listed here second).
Expenses that you cannot deduct here because of the income limit will "carry over," to be deducted next year--but only to the extent that you have enough income next year to offset them. That is, these expenses are not allowed to create a net loss from the business. This not-yet-deducted amount carries from year to year, until the year (if it ever comes) when you have enough income from the business to allow the deduction.
Although you may use this form if you're a self-employed sole proprietor (officially) or an employee (we give you that convenience to help you with Form 2106 or Form 2106-EZ), we guess that most taxpayers probably use this form for their own businesses. We therefore automatically place an "X" in the "Schedule C" box on line 1 for users entering information directly on the face of the form. You may elect "Form 2106" or "Form 2106-EZ" by placing an X in the appropriate box. For taxpayers using the Interview, we place an "X" in the appropriate box (Schedule C for sole proprietors and Form 2106 for employees).
We automatically place a "1" in the "Which copy of that form" box on line 1. However, you may enter a different number if you would like, as long as the number you enter corresponds to an existing copy number.
If there is an "X" in the "Schedule C" box on line 1, we carry the business name from Schedule C, line C , to the "Business name" line (Form 8829, line 1). Likewise, if there is an "X" in the "Form 2106" (or "Form 2106-EZ") box on line 1 of Form 8829, we carry the occupation name from Form 2106 (line 1 ) or Form 2106-EZ (line 1).
If you're renting out part of the house that contains your home office and if you're paying off a mortgage on that house, please see "Explain This Form" for the Mortgage Interest Worksheet (look at the "Multiple Allocations" section).
We blank out the hours on line 4, the amount on line 6, and the Mini-Worksheet for line 7 unless you place an "X" in the box on line 4 indicating that you have a day-care facility not used exclusively for business, in which case we (1) allow you to enter the number of hours on line 4 and (2) calculate the amount on line 6.
If there is an "X" in the "for Schedule C" box on line 1 of Form 8829, we carry your tentative profit or loss from Schedule C, line 29 to Form 8829, line 8a .
If there is an "X" in the "Form 2106" (or "Form 2106-EZ") box on line 1 of Form 8829, you will need to enter the amount of income (i.e., salary) from the use of your home. As an employee, the amount you enter typically will be a fraction of your pay.
On a given copy of Form 8829, the amount on line 10b carries from ALL those Mortgage Interest Worksheets that designate that particular copy of Form 8829 as a destination.
If you have deductible home mortgage interest, you should enter that interest initially on the Mortgage Interest Worksheet.
The date you enter on line 40a determines the depreciation code we automatically enter on line 40f. Here are some dates and their corresponding depreciation codes (the dates are inclusive--i.e., the starting and finishing dates for each depreciation code are part of the range of dates they delineate):
pre-12/31/80: depreciation code of "19";
1/1/81 - 3/15/84: depreciation code of "13";
3/16/84 - 6/22/84: depreciation code of "23";
6/23/84 - 5/8/85: depreciation code of "16";
5/9/85 - 12/31/86: depreciation code of "17";
1/1/87 - 5/12/93: depreciation code of "8";
post-5/13/93: depreciation code of "24."
Form 8829 uses the same depreciation calculations as the Depreciation Worksheet. Therefore, please refer to the Depreciation Worksheet for more information about these calculations.
We automatically put a "Y" in this box.
We put an "X" in this box if the property was not sold during the current tax year and if the date on line 40a of the Mini-Worksheet for Depreciation either is 7/31/86 or earlier or is 12/31/86 or earlier and the depreciation method is not the Modified Accelerated Cost Recovery System ("MACRS"). Before you enter a date on line 40a of the Mini-Worksheet for Depreciation or a month on line 40c, an "X" appears in this "pre-1987" box.
As long as the property is subject to AMT adjustment, we put an "X" in this box if the date on line 40a of the Mini-Worksheet for Depreciation is 1/1/87 or later or if the date on line 40a is 8/1/86 or later and you elected to depreciate the property according to the Modified Accelerated Cost Recovery System ("MACRS"). Because we assume that it's advantageous for you not to have elected MACRS, this box will be X'ed (if the date is appropriate) unless you indicate that you have elected MACRS.
We place an "X" in the box for "none" if the depreciation of the property doesn't require an AMT adjustment. Straight-line ("SL") property placed in service after December 31, 1998, is not subject to an AMT adjustment.
This form uses the same depreciation calculations as the Depreciation Worksheet. Therefore, please refer to the Depreciation Worksheet for more information about this calculation.