What this line means
The percentage of your home that is used for business. You get this by dividing line 1 (square footage of your office) by line 2 (total square footage of your home). A 200-square-foot office in a 2,000-square-foot home gives you 10%. This percentage is the single most important number on Form 8829 — it multiplies against nearly every indirect expense on the form to determine how much you can deduct.
Does this apply to you?
- You have a dedicated workspace in your home and need to determine how much of your household expenses are deductible
- You are using the regular method (Form 8829) rather than the simplified method for the home office deduction
- You want to allocate mortgage interest, utilities, insurance, and other home costs between personal and business use
Easy to overlook
Rooms of equal size allow a simpler calculation If your home has roughly equal-sized rooms, you can divide 1 by the total number of rooms instead of measuring square footage. A home with 10 similarly sized rooms where 1 is your office gives you 10% without pulling out a tape measure. The IRS explicitly allows this alternative when room sizes are approximately equal. 1 IRS Publication 587 — Business Use of Your Home, Figuring the Percentage
The percentage applies differently to direct vs. indirect expenses Direct expenses (repairs to the office itself) are 100% deductible regardless of this percentage. Indirect expenses (whole-house utilities, insurance) are multiplied by this percentage. Knowing which expenses are direct and which are indirect determines whether line 3 applies to them at all. 2 IRS Form 8829 instructions — Line 3
Watch out for this
Rounding up aggressively. If your actual percentage is 9.7%, entering 10% does not seem like a big deal — but the IRS treats Form 8829 as a high-scrutiny form, and even small inflations compound across every expense category. Use the exact percentage to two decimal places. The math is straightforward division, and there is no reason to round in your favor.
Footnotes
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IRS Publication 587, Business Use of Your Home, Figuring the Percentage. https://www.irs.gov/pub/irs-pdf/p587.pdf ↩
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IRS Form 8829 Instructions, Line 3. https://www.irs.gov/instructions/i8829 ↩