As the taxpayer’s principal place of business for any of his trade or businesses;
As a place of business used by the taxpayer’s patients, clients, or customers to meet or deal with him in the normal course of his trade or business; or
In connection with the taxpayer’s trade or business if it is a separate structure that is not attached to his home.
Exceptions to these rules apply to spaces used on a regular basis for:
Storage of inventory or product samples; and
Certain daycare facilities.
Daycare providers must file Form 8829. They will use hours spent providing childcare instead of the number of rooms or square feet to figure the percentage of business use. The time also includes time to clean the house before and after children arrive or leave and time spent preparing activities for the children. If childcare providers did not use their entire homes for childcare, they will use a combination of hours and square footage to determine business use. The home portion does not have to meet the exclusive use test if the use is for an in-home daycare facility.
Report the depreciation figure from Form 8829 on Form 4562, Depreciation and Amortization. For depreciation purposes, the portion of the home which is used for business is considered to be nonresidential real property with a 39-year property life.
Beginning with the tax year 2013, taxpayers can use a simplified method to determine expenses for business use of the home. When using the simplified method to figure the expenses for business use of the home, multiply $5 by the area of the home used for qualified business use. The area used to figure the deduction is limited to 300 square feet ($1,500). It is the taxpayer’s choice to use the simplified method or to use actual expenses. The election to use the simplified method is irrevocable for the tax year. The taxpayer can change methods yearly and does not need consent from the Commissioner of Internal Revenue (IRS Commissioner).