By Larry Gearhardt, Director OSU Income Tax Schools
A new option provides eligible taxpayers an easier way to calculate and claim the home office deduction. Currently, they are required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming this optional deduction will complete a significantly simplified form whereby they can claim a flat rate of $5 per square foot up to a maximum of 300 square feet.
The current restriction that the home office be used regularly and EXCLUSIVELY for business still applies (this means that the kitchen table does not qualify). However, if you have a designated area in your home that you use regularly and exclusively for business, you can take advantage of this safe harbor. Other restrictions are that you cannot depreciate the portion of your home used as a business, but using the new option does not diminish your right to deduct allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A.
Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees are still fully deductible. The new simplified option is available starting with the 2013 tax year reported on returns filed in early 2014. Further details on the new option can be found in Revenue Procedure 2013-13, posted on the IRS website at irs.gov.