January 8, 2014

New Safe Harbor for Office in Home Deduction

The IRS recently published revised information regarding a new safe harbor method for computing an office in home deduction.  Generally, no deduction is allowed for the business use of a home that’s also used by the taxpayer as a residence during the tax year. However, if strict requirements are met, deductions are allowed for direct expenses and the business-use part of the indirect expenses relating to the business use of a residence.

The new guidance provides a safe harbor method where an individual determines the allowable deduction for the qualified business use of a home by multiplying a prescribed rate ($5) by the square footage of the part of the residence that is used for business purposes, not to exceed 300 square feet, for a maximum deduction of $1,500. The safe harbor is effective for tax years beginning on or after Jan. 1, 2013.

Taxpayers claiming a home office deduction under the safe harbor must still satisfy all the existing office in home requirements, but the safe harbor will substantially reduce the taxpayer’s recordkeeping burden.

As always, we urge you to consult with your Anders tax professional regarding this development as it is a hot button issue for the IRS.

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