Deducting Expenses If you qualify to deduct expenses for the business use of yourhome, you must divide the expenses of operating your home betweenpersonal and business use. This section discusses the types ofexpenses you may have and gives examples and brief explanations ofsome of the expenses you may be able to deduct. Types of Expenses The part of a home operating expense that you can use to figureyour deduction depends on both of the following. Whether the expense is direct, indirect, orunrelated. The percentage of your home used for business. The following table describes the types of expenses you may haveand the extent to which they are deductible. Expense Description Deductibility Direct Expenses only forthe business partof your home. Deductible in full.* Examples:Painting or repairsonly in the areaused for business. Exception: May be only partially deductible in aday-care facility. See Day-Care Facility, later. Indirect Expenses forrunning yourentire home. Deductible based on the percentage of yourhome used for business.* Examples:Insurance,utilities, andgeneral repairs. Unrelated Expenses only forthe parts of yourhome not usedfor business. Not deductible. Examples:Lawn care, or paintinga room not usedfor business. *Subject to the deduction limit, discussedearlier. TaxTip: Form 8829 and the deduction worksheet (both illustrated near theend of this publication) have separate columns for direct and indirectexpenses. Expenses related to tax-exempt income.Generally, you cannot deduct expenses that are related totax-exempt allowances. However, if you receive a tax-exempt parsonageallowance or a tax-exempt military allowance, your expenses formortgage interest and real estate taxes are deductible under thenormal rules. No deduction is allowed for other expenses related tothe tax-exempt allowance. If your housing is provided free of charge and the value of thehousing is tax-exempt, you cannot deduct the rental value of anyportion of the housing. Examples of Expenses Certain expenses are deductible whether or not you useyour home for business. However, if you qualify to claim business useof the home expenses, you can use the business part of these expensesto figure your business use of the home deduction. These expensesinclude the following. Real estate taxes. Deductible mortgage interest. Casualty losses. Other expenses are deductible only if you use your homefor business. You can use the business part of these expenses tofigure your business use of the home deduction. These expensesgenerally include (but are not limited to) the following. Depreciation (covered under Depreciating Your Home,later). Insurance. Rent. Repairs. Security system. Utilities and services. Real Estate Taxes To figure the business part of your real estate taxes, multiply thereal estate taxes paid by the percentage of your home used forbusiness. For more information on the deduction for real estate taxes, seePublication 530, Tax Information for First-Time Homeowners. Deductible Mortgage Interest To figure the business part of your deductible mortgage interest,multiply this interest by the percentage of your home used forbusiness. You can include interest on a second mortgage in thiscomputation. If your total mortgage debt is more than $1,000,000 oryour home equity debt is more than $100,000, your deduction may belimited. For more information on what interest is deductible, seePublication 936, Home Mortgage Interest Deduction. Casualty Losses If you have a casualty loss on your home that you use for business,treat the casualty loss as a direct expense, an indirect expense, oran unrelated expense, depending on the property affected. Direct expense. If the loss is on the portion ofthe property you use only in your business, use the entireloss to figure the business use of the home deduction. Indirect expense. If the loss is on property youuse for both business and personal purposes, use only thebusiness portion to figure the deduction. Unrelated expense. If the loss is on property youdo not use in your business, do not use any of the loss tofigure the deduction. If you are filing Schedule C (Form 1040), get Form 8829 and followthe instructions for casualty losses. If you are an employee or fileSchedule F (Form 1040), you can use the worksheet near the end of thispublication. You will also need to see Form 4684, Casualties andThefts. For more information on casualty losses to business and nonbusinessproperty, get Publication 547, Casualties, Disasters, and Thefts(Business and Nonbusiness). Insurance You can deduct the cost of insurance that covers the business partof your home. However, if your insurance premium gives you coveragefor a period that extends past the end of your tax year, you candeduct only the business percentage of the part of the premium thatgives you coverage for your tax year. You can deduct the businesspercentage of the part that applies to the following year in thatyear. Rent If you rent the home you occupy and meet the requirements forbusiness use of the home, you can deduct part of the rent you pay. Tofigure your deduction, multiply your rent payments by the percentageof your home used for business. You cannot deduct the fair rental value of your home. If you ownyour home, see Depreciating Your Home, later. Repairs The cost of repairs and supplies that relate to your business,including labor (other than your own labor), is a deductible expense.For example, a furnace repair benefits the entire home. If you use 10%of your home for business, you can deduct 10% of the cost of thefurnace repair. Repairs keep your home in good working order over its useful life.Examples of common repairs are patching walls and floors, painting,wallpapering, repairing roofs and gutters, and mending leaks. However,repairs are sometimes treated as a permanent improvement. SeePermanent improvements later under Depreciating YourHome. Security System If you install a security system that protects all the doors andwindows in your home, you can deduct the business part of the expensesyou incur to maintain and monitor the system. You can also take adepreciation deduction for the part of the cost of the security systemrelating to the business use of your home. Utilities and Services Expenses for utilities and services, such as electricity, gas,trash removal, and cleaning services, are primarily personal expenses.However, if you use part of your home for business, you can deduct thebusiness part of these expenses. Generally, the business percentagefor utilities is the same as the percentage of your home used forbusiness. Telephone.The basic local telephone service charge, including taxes, for thefirst telephone line into your home is a nondeductible personalexpense. However, charges for business long-distance phone calls onthat line, as well as the cost of a second line into your home usedexclusively for business, are deductible business expenses. You candeduct these expenses even if the expenses for the business use ofyour home do not qualify for the deduction. Deduct these chargesseparately on the appropriate schedule. Do not include them in yourhome office deduction.