In today’s digital and telecommuting world, an increasing number of people are working from home. The U.S. Bureau of Labor Statistics reports that a sizable part of the workforce – 23 percent – did at least some of their work from home in 2017. If you own your home, you can take certain tax deductions that help reduce your tax liability each year. Homeownership also carries additional benefits if you use part of your primary house for business purposes. One of these benefits is claiming your property for tax depreciation.
You can claim a deduction for depreciation on your primary house for its business use if you own your home and if you meet the qualifications under IRS guidelines for business deductions.
Deduct Primary Residence Depreciation
The IRS considers your primary residence to be the house where you live most of the time. But other factors define your principal residence such as the address that’s listed on your U.S. Postal Service address, driver’s license, voter registration card and tax returns.
Primary residence depreciation is a tax deduction that helps you recoup the costs of normal wear and tear or deterioration of your property. But you can only claim depreciation on your primary residence for the area(s) that you exclusively use for business purposes. For example, exclusive use does not include a den that you use for business use as well as personal/family use. You may set up an office in your dining room, which is not completely enclosed by four walls because it opens on one side into your living room. But if you use this space exclusively for business, such as your office, it qualifies. The IRS defines this as a separate “identifiable space” in your home that’s devoted to a trade or business that doesn’t have to be contained by a "permanent partition."
You're also entitled to claim depreciation for the part of your home that you rent such as a bedroom or an in-law suite. IRS Publication 527 lists all the specifics for qualifying for this deduction.
Exceptions to the Depreciation Deduction
You can claim depreciation on your primary residence if you have a day care facility, even if the space you use for daycare is a shared space that also has non-business use, if you meet two tests: 1) You must provide day care for children, adults older than age 65 or persons with mental or physical needs who cannot care for themselves and 2) you must be legally recognized as a day care center, family day care or group day care home in good standing in your state.
If you have an inventory storage area, such as a garage, basement or storage building, you may be able to claim depreciation without meeting the test for exclusive use. But you’ll have to meet all these tests to qualify the area for depreciation:
- You sell wholesale or retail products
- You store these products in your home
- Your home is your only business location
- You regularly use the storage area
- The area is separate, identifiable and suitable for storage
For example, you may use half of a storage building on your property for storing inventory and the other half for storing personal items. Even though the storage building is not used exclusively for business use, you can still deduct depreciation for it.
2018 Tax Law
If you are claiming business deductions for your primary house, you can use one of two methods – the regular method or the simplified option, as explained in IRS Publication 587. But you cannot deduct depreciation if you use the simplified option. If you’re using the regular method, and if you’re self-employed, use Form 8829 (Expenses for Business Use of Your Home) to determine your business expenses for Schedule C on your 1040 tax return. If you’re claiming the depreciation deduction as an employee or a partner of a company, or if you’re reporting this deduction on Schedule F (Profit or Loss from Farming), you must use the worksheet in Publication 587 to determine your business deduction.
2017 Tax Law
There was no change in the business depreciation deduction laws for your primary house in 2017. You'll use the same tax forms that also apply to the 2018 tax year.
- United States Bureau of Labor Statistics: American Time Use Survey — 2017 Results
- IRS: Publication 587 (2018), Business Use of Your Home
- IRS: Publication 523 (2018), Selling Your Home
- IRS: Publication 527 (2018), Residential Rental Property
- IRS: A Brief Overview of Depreciation
- IRS: Simplified Option for Home Office Deduction
- IRS: 2018 Instructions for Form 8829
- IRS: 2018 Instructions for Schedule F
Victoria Lee Blackstone was formerly with Freddie Mac’s mortgage acquisition department, where she funded multi-million-dollar loan pools for primary lending institutions, worked on a mortgage fraud task force and wrote the convertible ARM section of the company’s policies and procedures manual. Currently, Blackstone is a professional writer with expertise in the fields of mortgage, finance, budgeting and tax. She is the author of more than 2,000 published works for newspapers, magazines, online publications and individual clients.