Simplified Option for Claiming Home Office Deduction

HOME-OFFICE-TAX-DEDUCTIONStarting in tax year 2013, many owners of home-based businesses and some home-based workers may utilize this simplified method to calculate their deductions for the business use of their home.

This simplified method does not change the requirements for who may claim a home office deduction, it just provides eligible taxpayers a shortcut to claiming the deduction.

Highlights of the simplified method:

  • Standard deduction of $5 per square foot of home used for business using 300 square feet as the maximum. Therefore, the maximum deduction is $1,500 per year under this method.
  • Mortgage interest and real estate taxes are claimed in full on Schedule A.
  • No home depreciation deduction or later recapture of depreciation for the years the simplified method is used.

Taxpayers can choose the actual expense method or the new simplified method for any tax year. Once a method is elected for a taxable year, the taxpayer cannot later change to the other method for that same year.

Comparison of methods

SIMPLIFIED OPTION REGULAR METHOD
Deduction for home office use of a portion of a residence allowed only if that portion is exclusively used on a regular basis for business purposes Same
Allowable square footage of home use for business (not to exceed 300 square feet) Percentage of home use for business
Standard $5 per square foot used to determine home business deduction Actual expenses determined and records maintained
Home-related itemized deductions claimed in full on Schedule A Home-related itemized deductions apportioned between Schedule A and business schedule (Schedule C or F)
No depreciation deduction Depreciation deduction for portion of home used for business
No recapture of depreciation upon sale of home Recapture of depreciation on gain upon sale of home
Deduction cannot exceed gross income from business use of home less business expenses Same
Amount in excess of gross income limitation may not be carried over Amount in excess of gross income limitation may be carried over
Loss carryover from use of regular method in prior year may not be claimed Loss carryover from use of regular method in prior year may be claimed if gross income test is met in current year

The new simplified method is available with the 2013 return most taxpayers file early in 2014.

By: Diane Allman, CPA

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