How Do You Deduct House Expenses With Two Home-Based Businesses?

4352207096_3f2e0190a3_zWhen you or your spouse operate more than one business out of your home you must follow special  rules when claiming house-related expenses.

The rules for claiming house expenses are different for every other business besides family child care.

To be able to count a room as used for business purposes:

* All businesses, except family child care, must be using a room exclusively for their business. This means that no personal activity may ever be conducted in that room.

* Family child care providers can count rooms that are used “regularly” for their business. Regular use means that your business uses a room two-three times per week.

Note: family child care providers can also have rooms they use exclusively for their business. See my article, “How to Claim the Exclusive Use Rule.”

If your spouse uses a room exclusively for his business, you can’t count the room in your business. If you use a room regularly for your business, your spouse can’t count it as an exclusive use room for his business. The same would be true if you ran a family child care business and any other business out of your home.

Example

Your home is 2,000 square feet. Your husband’s graphic arts business occupies 100 square feet of the home. The remaining 1,900 square feet is used regularly for your child care business. Your Time percent is 40%.

If you husband is using his office exclusively for his business, his business-use percentage of the home would be 5% (100 divided by 2000). He could deduct 5% of the house expenses (property tax, mortgage interest, house repairs, utilities, and house depreciation) on his own Form 8829 Expenses for Business Use of Your Home.

Your Time-Space Percentage would be 38% (95% Space x 40% Time). You would claim 38% of the house expenses on your Form 8829.

If you itemized your taxes, you could claim 57% of your property tax and mortgage interest on Schedule A Itemized Deductions (100% of house expenses – 5% – 38% = 57%).

If you operated two businesses yourself (family child care and sewing), you would follow the same guidelines described above. Your sewing business must use a room exclusively for that business to be able to claim any house expenses. You would file one Schedule C and one Form 8829 for each business.

If the other business does not meet the exclusive use test, you would not file a Form 8829 for that business, because it would not be entitled to claim any house expenses.

Tom Copeland – www.tomcopelandblog.com

Image credit: https://www.flickr.com/photos/seiu/

Record Keeping smallFor more information about the Time-Space Percentage, see my Family Child Care Record Keeping Guide.

 

 



Categories: Record Keeping & Taxes, Time-Space Percentage

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