Friday, December 13, 2013

New Simplified Home Office Business Use Deduction

The IRS has provided a new, optional, “Safe Harbor Home Office” expense deduction effective for tax years beginning on or after January 1, 2013!

The deduction allowed is $5 per square foot of the “qualified use” space up to 300 square feet.  The maximum deduction is $1,500.  

·    A home office is considered the taxpayer’s primary place in which he or she conducts trade or business.
·    The home office may or may not be part of or attached to the taxpayers residence.  It may be a separate structure on the property used exclusively, on a regular basis, as a home office.
·    A home office is where the taxpayer will meet clients, customers or patients during the normal course of business.
·    Home-related itemized deductions are claimed 100% (without allocation) on Schedule A (for example, mortgage interest and real estate taxes).
·    No depreciation deduction or later recapture on sale of the home is allowed if the “safe harbor method” is used.
·    Of course, even under the simplified method, it is the taxpayer’s responsibility to ensure  good records which prove the exclusive use of the home office continue to be maintained to substantiate the claim.

This deduction is an alternative to the calculation, allocation and substantiation of actual expenses required under the IRS code section 280A.  If the deduction is greater using the 280A method you can still use that method.  Taxpayers are allowed to change their treatment from year to year.