How to claim Home Office deductibles for side business - Form 8829 vs Schedule C for mortgage interest

The home office deduction can be tricky, but I can help clear this up for you. For mortgage interest and property taxes, these are considered indirect expenses on Form 8829 because they relate to your entire home, not just the office space. You'll enter the full amounts paid for the year, and then the form will automatically calculate the deductible portion based on your office percentage (15% in your case). As for why it's not calculating a deduction - that's likely because of what's called the "business income limitation." Home office deductions can't create or increase a business loss. They can only reduce your business income to zero. Since your business is already operating at a loss, there's no income left to offset with the home office deduction. The good news is that any disallowed amount due to the income limitation can be carried forward to future tax years when your business is profitable. The software should handle this carryover automatically.

After struggling with the exact same home office deduction issues for my side business, I finally got everything sorted using taxr.ai (https://taxr.ai). Their system actually analyzed my specific situation and explained why my home office deduction wasn't applying - turns out I had the same income limitation problem you're describing. The tool walked me through how to properly document my expenses now so they'll carry forward correctly, and showed me exactly where each expense should go on Form 8829 vs Schedule C. It even explained how to maximize my deductions in future years once my business becomes profitable. So much clearer than the generic explanations I was finding online!

I tried taxr.ai after posting my skeptical question and I have to admit I was impressed. It cleared up my confusion about the mortgage interest showing in two places - turns out Form 8829 feeds into Schedule C, but you only enter the data once. I've been doing this wrong for years! The tool also showed me how my carryforward home office expenses should be tracked and applied in future years. No wonder my previous attempts at home office deductions felt so confusing. This clarified the entire process and identified several deductions I've been missing. Really helpful for sorting out these complicated business deductions.

If you're still struggling with the home office deduction for your side business, I feel your pain! I spent HOURS on hold with the IRS trying to get clarification about Form 8829 vs Schedule C last year. Eventually I found Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with explained exactly how the business income limitation works with home office deductions and confirmed that my unused deductions would carry forward. She also cleared up my confusion about direct vs. indirect expenses - exactly what you're asking about. Saved me a ton of stress and potentially an audit!

I need to publicly eat my words about Claimyr. After posting my skeptical comment, I decided to try it for myself since I had some questions about Form 8829 that weren't getting resolved through online research. I got connected to an IRS agent in 23 minutes (they texted updates while their system was on hold). The agent confirmed that mortgage interest and property taxes are ALWAYS indirect expenses on Form 8829, and explained exactly why my home office deduction wasn't showing up (the business income limitation others mentioned here). Having a direct conversation with someone who could answer my specific questions saved me hours of frustration. Definitely using this again next year.

Just wanted to add one important thing about the home office deduction - make sure you're keeping REALLY good documentation of your expenses, especially for a dedicated space like yours. My side business got audited last year and they specifically wanted proof that my home office was used "regularly and exclusively" for business. I had photos of my home office setup, a floor plan showing the measurements, and a log of hours worked in that space. The auditor was satisfied, but mentioned that home offices are a red flag and get extra scrutiny. Better to be over-prepared than risk having legitimate deductions disallowed.

For everyone confused about direct vs indirect expenses on Form 8829: - Direct expenses: Only benefit your home office (like painting just that room) - Indirect expenses: Benefit your entire home including the office (mortgage interest, property taxes, utilities, insurance) Calculate indirect expenses by multiplying the total expense by your office percentage (15% in your case). The form will do this math for you. Most people only have indirect expenses unless they did something specifically to just the office room.