The IRS is reminding taxpayers that it has unveiled a “simpler option” to figure the business use of a home.
The simplified option does not change the rules for who may claim a home office deduction but simplifies calculation and recordkeeping requirements, but it should make it simpler to file for and claim it.
Among the points of the option:
- Taxpayers may elect the simplified method when they file their 2013 return. If they use this method to claim the home office deduction, they will not need to calculate the deduction based on actual expenses, but instead multiply the square footage of the home office by a prescribed rate of $5 per square foot of the part of the home used for business. The maximum allowed is 300 square feet, meaning that the most a client can deduct using the new method is $1,500 per year.
- Taxpayers may choose either the simplified method or the actual expense method for any tax year. Once they use a method for a specific tax year, they cannot later change to the other method for that same year.
- If a taxpayer uses the simplified method and they owns their home, they cannot depreciate the home office but can still deduct other qualified home expenses, such as mortgage interest and real estate taxes. They will not need to allocate these expenses between personal and business use, but this allocation is required if they use the actual-expense method. These deductions are claimed on Schedule A.
- Taxpayers can still fully deduct business expenses unrelated to the home if they use the simplified method, such as advertising, supplies and employees’ wages.
- If a taxpayers uses more than one home with a qualified home office in the same year, they can use the simplified method for only one in that year. They may use the simplified method for one and actual expenses for any others in that year.