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In the United States, if you run a home business, you may file Form 8829 to deduct the cost of a home office in your income taxes. This form has you calculate the percentage of the home used for the home office.

Form 8829 has on line 1:

Area used regularly and exclusively for business, regularly for daycare, or for the storage of inventory or product samples.

And on line 2:

Total area of home

I'm wondering if the total area of the home includes your garage? What about a basement area that has been finished but is not of the quality of the primary living area? I would think line 1 would include such areas since one might use such areas for business purposes, so I imagine the answer should be yes, but since the garage and finished basement areas are sub-par living areas, it seems ingenuine to count them equally square foot for square foot with normal living areas. Should the home use percentage weigh premium living area stronger than sub-par areas such as the garage, and if so, how should this be done?

  • Suppose Line 1 is fixed, say 100 square feet which might (or might not) include some space in the garage. Which is preferable: Line 2 to say 2000 square feet of living space (as would be defined, say, in an ad for selling the house) or Line 2 to say 2500 square feet which includes the garage in the square footage? Would your answer change depending on whether that 100 square feet includes, say, 20 square feet of garage storage space? – Dilip Sarwate Sep 9 '12 at 17:40
  • Taxwise, it would be preferable for line 2 to say 2000 so the business use ratio of house was higher. But, I want to follow proper process not just what is most advantageous. – WilliamKF Sep 9 '12 at 19:51
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Yes, all the house footage is treated the same. The use of home is a (suspected) audit trigger, so do consult with a tax professional if you want to take this deduction.

From the statute (IRC Sec. 280A):

The term dwelling unit includes a house, apartment, condominium, mobile home, boat, or similar property, and all structures or other property appurtenant to such dwelling unit.

  • Can you cite this in any way? – WilliamKF Sep 9 '12 at 20:41
  • IRC Section 280A. – littleadv Sep 9 '12 at 21:28

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