Who can use Form 8829
Schedule C filers who use part of their home regularly and exclusively as a principal place of business, as a place to meet clients, or as a separate structure used in the trade or business, may deduct an allocable portion of utilities, mortgage interest, real estate taxes, insurance, repairs, security, and depreciation. Daycare providers may meet the regular-use test without exclusive use under a special rule.
Allocation method
Part I asks for the area used regularly and exclusively for business and the total area of the home, producing a business-use percentage. Part II separates expenses into "direct" (100% deductible because they apply only to the office) and "indirect" (multiplied by the business-use percentage). Mortgage interest and real estate taxes are split between Schedule A (personal portion) and Form 8829 (business portion).
Depreciation and recapture
Part III computes depreciation on the business-use portion of the home using the 39-year nonresidential straight-line method. When you eventually sell the home, the depreciation claimed is "unrecaptured Section 1250 gain" taxed at up to 25%, even if the rest of the gain qualifies for the Section 121 home-sale exclusion. Plan for this future tax cost when deciding between actual expenses and the simplified method.
Simplified method
Instead of Form 8829, you may elect a $5-per-square-foot safe harbor (capped at 300 square feet, $1,500 maximum) directly on Schedule C, line 30. The simplified method requires no depreciation, no recapture, and no allocation of utilities — but it gives up potentially larger deductions when actual expenses are high.
Deduction limit and carryover
The home-office deduction cannot create or increase a net loss on Schedule C. Excess expenses carry over to future years (only under the actual method, not the simplified method). Always run both methods in years when income is tight to see which produces a better long-term result.
Software vs. paper filing
Most filers use commercial tax software or a tax preparer to handle Form 8829, Expenses for Business Use of Your Home — and that is the right call for nearly all small-business returns. The IRS Free File program is open to taxpayers below an annually adjusted income limit and supports most small-business forms. Direct paper filing is technically still an option but is slower, more error-prone, and increasingly relegated to corner-case situations. Whichever path you choose, retain a digital PDF of the as-filed return for at least three years (six if you under-reported income by more than 25%).