Written by Manasa Nadig | Posted in Individual • North America • Tax Blogs • United States

Home Office Deduction- Recent Changes 

If you use your home for business, there are expenses you can deduct on your tax return. The home office deduction is available to both home owners & renters alike. The home must be used by a self-employed individual or an employee who works from home for his employer’s convenience.

This deduction has been available for a few years now, however with the tax year beginning January 1st, 2013 (filing starting January 1st, 2014), the Internal Revenue Service issued Rev Proc. 2013-13. This revenue procedure details an optional safe harbor available to individual tax payers for calculating a home office deduction.

The individual can claim the Home Office Deduction based on either the Simplified Method or the Regular Method (Details Follow).

Simplified Method: 

•  A standard deduction of $5 per sq foot for a home used for business up to a maximum of 300 sq feet.

•  No home office depreciation deduction is allowed nor is a later recapture for the years the simplified option was used.

•  Allowable home related expenses, such as, Mortgage Interest or Property Taxes is claimed in full on Schedule A.

•  Expenses in excess of income cannot be carried forward. Nor can a loss carryover from a previous regular method used be claimed.

Regular Method:

•  Actual Expenses determined for percentage of the home used for the business will be used.

•  Home related expenses will be apportioned between Schedule A & the business Schedule C or F.

•  Depreciation and depreciation recapture for portion of home used for business can be claimed.

•  Amount in excess of gross income limitation can be carried forward.

What Method Can I Use?

•  Either of the above methods can be used for the tax year.

•  Once the method is chosen for a taxable year, it cannot be changed to the other method for the same tax year.

•  If the simplified option is used one year & later changed to the regular method, the depreciation for the subsequent year should be calculated using appropriate optional depreciation table.

•  The regular method requires detailed record keeping but the simplified option does not.

•  The home office deduction under the simplified option is limited to $1500.

•  Both the methods should be compared to yield the most beneficial deduction to the tax payer.