The American Institute of CPAs has sent a letter to the Internal Revenue Service asking the IRS to re-evaluate some of its proposals for a safe harbor method for the home office deduction, even though the AICPA acknowledged that the method would be simpler for taxpayers to use.

The IRS proposed a simplified way for small business owners and home-based employees to claim the home office tax deduction in January (see IRS Offers Simpler Option for Calculating Home Office Deduction). The proposals, in Revenue Procedure 2013-13, included provisions for a safe harbor method that would allow taxpayers to deduct home office expense at $5 per square foot for a maximum of 300 square feet of qualified home office space used, for a maximum yearly deduction of $1,500. 

In a letter sent last week to the IRS, AICPA Tax Executive Committee chairman Jeffrey A. Porter wrote that the proposed optional safe harbor method “would simplify the tax preparation and record-keeping process for many taxpayers and small business owners who are eligible for the deduction but who do not currently deduct home office expenses.”

However, the AICPA recommended that the IRS re-evaluate several details. The letter recommended that the IRS increase the initial maximum deduction to $2,000 to $3,000. The IRS should also consider allowing taxpayers who choose the safe harbor method to deduct depreciation expense in addition to the home office deduction. Taxpayers should be permitted to deduct any disallowed home office deduction carryforward in the next year, regardless of the method used, the AICPA suggested. In addition, ordering rules should be established, so that the carryforwards would be applied first, and then the current year’s deduction (safe harbor or actual method), and any unused deduction, which was generated by use of the actual method, would be allowed to carry forward to the next tax year. The Institute also recommended that the IRS designate a method of establishing a yearly or periodic cost-of-living adjustment to reflect inflation.

"The AICPA supports the concept of a simplified method to deduct home office expenses, as the safe harbor method will increase the availability of home office deductions for taxpayers who are eligible for the deduction and have not been claiming it,” Porter wrote. “We recommend that the IRS and Treasury re-evaluate and alter some of the details of their proposal to implement the safe harbor method. For taxpayers who have been claiming (or may in the future claim) the home office deduction under the actual expense method, unanticipated administrative burdens have been created for the taxpayer, which should be considered when the IRS and Treasury draft future guidance and forms for both the safe harbor and actual methods of home office deductions.”