April 16, 2018

Simplified Option for Claiming Home Office Deduction

Simplified Option for Claiming Home Office Deduction Tax & Business

The Internal Revenue Service recently announced a simplified option that owners of home-based businesses may use to determine deductions for the business use of their homes. The new simplified option is available starting with the 2013 return.

Over 3 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction). The IRS has suggested an optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet. Use of the optional deduction will reduce the paperwork and recordkeeping burden on small businesses.

The new option provides eligible taxpayers an easier format in which to claim the home office deduction. Currently, taxpayers seeking this deduction are generally required to fill out a 43-line form (Form 8829) including complex calculations of allocated expenses and depreciation.  Taxpayers opting to utilize the optional deduction will complete a simplified form.

Homeowners using the new option cannot depreciate the portion of their home used in the business. Allowable mortgage interest and real estate taxes can be claimed as itemized deductions on Schedule A and need not be allocated between personal and business use, as required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as being used exclusively for business, still apply under the new option. 

Further details on the new option can be found in Revenue Procedure 2013-13, posted on IRS.gov.

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Tax & Business