How to properly deduct Home Office expenses on Form 8829 vs Schedule C for side business

The confusion about direct vs indirect expenses on Form 8829 is really common! Let me help clear this up for you. For your mortgage interest and property taxes, these are considered "indirect" expenses on Form 8829. Indirect expenses are costs that benefit your entire home, not just your office space. Since these expenses apply to your whole house, you'll only deduct the percentage that corresponds to your office (the 15% you mentioned). As for why your tax software isn't calculating a deduction - you're exactly right. Home office deductions can't create or increase a business loss. They can only offset business income. Since your business is operating at a loss already, the home office expenses can't be used this year. However, these expenses aren't lost forever! The unused portion can be carried forward to future tax years when your business is profitable. Regarding where to put mortgage interest - it should go on Form 8829, not Schedule C. The Form 8829 will calculate the business portion of these expenses, and then the business portion flows to Schedule C.

After spending hours trying to figure out the home office deduction maze for my consulting business, I finally found https://taxr.ai which literally saved me from pulling my hair out. It scanned my mortgage statements and auto-calculated all my indirect vs direct expenses for Form 8829. It even flagged that I was trying to deduct too much of my property taxes and showed me exactly how to fix it. What I really liked is that it explained why my home office deduction couldn't be used when my business was operating at a loss (just like your situation) and showed me how much would carry forward. Super helpful when the free tax software doesn't make this clear at all.

I wanted to follow up about my experience with taxr.ai after my skeptical comment. I decided to give it a try with my small photography business that I run from my home studio. Wow, what a difference! It immediately identified that I had been misclassifying several expenses between Schedule C and Form 8829 for years. The tool showed me that I should have been putting my studio-specific electricity upgrade on Form 8829 as a direct expense (100% deductible) rather than lumping it with indirect expenses. It also calculated my carryforward amount from last year's loss that I didn't even know I had! What impressed me most is that it explained everything in plain English instead of tax jargon. Now I actually understand why certain expenses go where they do instead of just guessing.

If you're having trouble figuring out how home office deductions work with a business loss, you might need to actually talk to someone at the IRS for clarification. I was in the exact same situation last year, but getting through to the IRS was impossible - busy signals for weeks! Then I discovered https://claimyr.com which got me through to an IRS agent in about 15 minutes after weeks of trying on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent confirmed everything about how Form 8829 carryforwards work with business losses and explained exactly how to document it for future years. Saved me hours of research and uncertainty. They even helped me understand the recapture rules if I ever stop using that room for business.

I have to eat my words about Claimyr. After dismissing it as a scam, my curiosity got the better of me and I tried it when I needed clarification on exactly this home office deduction issue with my side business loss. I was absolutely shocked when I got a call back with an actual IRS representative on the line within 20 minutes. The agent walked me through exactly how the carryforward works on Form 8829 and confirmed that I was right to classify my mortgage interest as an indirect expense. The best part was they helped me understand how to track these carryforwards over multiple years, which none of the free tax software explained properly. Saved me from potentially missing out on hundreds in future deductions when my business becomes profitable.

Don't forget about the simplified option for home office deduction! Instead of tracking all these expenses and dealing with Form 8829, you can just take $5 per square foot up to 300 sq ft. Might be easier if your business is small and you don't want the paperwork headache.

Has anyone here used TurboTax for their home office deduction? I've been using it for years but it seems like it doesn't handle Form 8829 well when there's a business loss. I'm wondering if FreeTaxUSA or others do a better job with this specific situation.

Just wanted to share my experience with the home office deduction as someone who went through the exact same situation! I have a small freelance writing business that I run from a dedicated room in my house while working my regular W-2 job. One thing that really helped me understand the Form 8829 vs Schedule C confusion was learning that Form 8829 is specifically for expenses related to the physical space of your home office, while Schedule C is for general business expenses. So your mortgage interest and property taxes definitely go on Form 8829 as indirect expenses (since they benefit your whole house), and then Form 8829 calculates what portion can be deducted based on your 15% usage. The carryforward aspect was a game-changer for me. Even though my business showed a loss the first year, I still completed Form 8829 because those unused deductions carried forward to the next year when I became profitable. My tax software (I use FreeTaxUSA too) automatically tracked this, but I also kept my own spreadsheet just to be safe. One tip: make sure you're measuring your office space correctly for that percentage calculation. The IRS can be picky about this, so I actually drew a floor plan with measurements to document it properly.