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George Saenz, the Bankrate.com Tax Talk columnistHome-office deduction for eBay entrepreneur

Dear Tax Talk,
I am in the process of starting up eBay in my home. I am also alone -- meaning I have extra rooms for the first time! Divorced.

If I set up a room for JUST business, even if I do not make money the first year, will I benefit taxwise?
-- Dan

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Dear Dan,
I imagine the first thing you need to sell on eBay is the stuff your ex left behind, intentionally or not. You hear a lot of negatives about claiming home-office expenses, and they really don't amount to much of a tax savings. Publication 587 is IRS's whopping 31-page guide to claiming a tax benefit for expenses you already incur. In order to qualify the home office, you have to use the room exclusively and regularly as your principal place of business. Exclusive means as you said -- JUST for business. Regularly means that it is used more than just occasionally. For example, you're regularly in that room to work on your eBay business and the business involves more than just an occasional product offering.

As an eBay seller, you'll be considered self-employed. You'll use Schedule C to report your business income and expenses. Line 30 of Schedule C is used for claiming home-office expenses and it refers you to carry over the deduction from Form 8829.

Form 8829 asks you to break out your home-office expenses between direct and indirect expenses. Direct expenses would be repairs such as painting the room; indirect expenses would be utilities, gas and gardening that pertain to the entire home. Your indirect expenses are limited to the number of square feet the office space occupies in relation to the total square footage of the home.

Additionally, no deduction is allowed for indirect expenses other than mortgage interest and taxes if there's no net business income for the year. If you don't make any money in the first year, you don't lose your home-office deductions. You can carry them over to a subsequent year when you may have income, which isn't a bad benefit if the business does take off.

To ask a question on Tax Talk, go to the "Ask the Experts" page, and select "taxes" as the topic.

Bankrate.com's corrections policy -- Posted: May 31, 2005
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