News & Announcements

A Simplified Option for Home Office Deduction Starts This Year

January 16, 2013

The IRS issued Revenue Ruling 2013-13 which provides taxpayers with a new simplified safe harbor method for figuring the business use of home deduction for tax years starting in 2013.

This new safe harbor deduction calculation is based on a $5 per square foot of business office space, capped at $1,500 (or up to 300 square feet).

A taxpayer elects the safe harbor method by using it to compute the deduction for the qualified business use of home on his/her timely filed tax return. Once this election is made for any tax year, it is irrevocable. The taxpayer will still be allowed to claim 100% of their mortgage interest, real estate taxes, and casualty losses on their home on Schedule A as itemized deductions; no allocation between personal and business use would be required.

Under this safe harbor method, a taxpayer will not be allowed to depreciate the portion of their home used in a trade or business. If the taxpayer subsequently calculates and substantiates actual expenses under Sec. 280A, depreciation must be calculated using the appropriate optional depreciation table.

All other requirements for taking the home office deduction must still be met, such as the home office must be used regularly and exclusively for business, and the deduction cannot exceed the net income derived from the business. Any amount disallowed under the safe harbor method may not be carried over to any other tax year. Any disallowed home office deductions from years when a taxpayer uses the actual expense method under Sec. 280A can only be carried forward and used in those years when the taxpayer again uses the actual expense method.

Taxpayers can now choose between the two methods each year. A change in method from one year to the next does not constitute a change in method of accounting. The IRS states that goal of this simplified method is to reduce the paperwork and record keeping burden on small businesses.

 

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