Simplified Home Office Deduction

The IRS has just announced a simplified option for taxpayers who claim the home office deduction. It is hard to believe that the IRS would actually make something simple, but it is true. Effective for taxable years starting January 1, 2013, taxpayers can claim the office in home deduction each year by multiplying $5 times the square footage of their home office. This deduction is capped at $1,500 per year. The rules for what is considered a valid home office have not changed. 

In prior years, taxpayers were required to complete Form 8829 that went through complex calculations to allocate depreciation and various expenses. Any unused amounts were carryovers to future tax years.

Simplified Method

Under the simplified method, taxpayers cannot claim depreciation on the portion of their home used for business. Business expenses unrelated to the home and exclusively used for business can still be deducted when calculating business net income. Taxpayers can still claim mortgage interest and real estate taxes on Schedule A as an itemized deduction and cannot claim these items as expenses when calculating net income of the business. A taxpayer can elect each year whether or not to use this simplified method as long as the election is made on a timely filed original return. Once the election is made, it is irrevocable for that year. 

This simplified method saves taxpayers time and money because they no longer have to go through the complex calculations but it also relieves the taxpayer of the recordkeeping required under the traditional method. Please contact your Anders advisor for further guidance.