Generally, rent payments for your personal residence are not tax-deductible. This is a disadvantage that renters have, compared to owners, who are able to deduct mortgage interest costs and take depreciation on rental properties. Rent payments to landlords, however, must be declared as income on their personal or corporate tax returns. Landlords may offset these rent payments with property maintenance, upkeep and marketing expenses. If you are paying rent on a business location, however, or if you use part of your residence for business purposes, other rules apply.
Rent for Businesses
If you are paying rent on a location used for your business, such as a storage facility, lot or piece of equipment, you may deduct rent payments, either by accounting for them on a Schedule A or by accounting for them on Schedule C, Profit or Loss from Business. The IRS allows for the full deduction of necessary and proper rent payments for business purposes.
If you use part of your residence for business purposes, you may be able to take the home office deduction. In order to qualify, however, you must be able to show that you use the relevant parts of your home specifically for business. You do not have mixed-use areas. If you have a home office, you must use your home office only for business, and not for your own personal use. Same with storage areas: You must use storage areas for business only, though there are certain exemptions made for some types of businesses such as home day care facilities.
Figuring the Deduction
Self employed individuals use IRS Form 8829, Expenses for Business Use of Your Home, to figure their deduction. You can then report your deduction on Schedule C, Profit or Loss from Business. You do not have to have a separate, walled off area for work to qualify for the deduction. A corner in your living room is acceptable, provided you use it exclusively for business.
Exceptions to Exclusive Use
You do not need to meet the usual exclusive use test if you meet the following conditions: you sell products as your trade, you keep the inventory in your home, your home is the only fixed location for your business, you use the storage area regularly and you use a separately identifiable space for storage.
If you use your home for business, you can also deduct other costs associated with your business, such as security or monitoring system costs, utilities and insurance premiums.
Jason Van Steenwyk has been writing professionally since 1998. A former staff reporter for "Mutual Funds Magazine," he has been published in "Wealth and Retirement Planner," "Annuity Selling Guide," "Registered Rep." "Bankrate.com" and "Senior Market Advisor." He holds a Bachelor of Arts in humanities from the University of Southern California.