The question we are addressing in today's article: "I understand there is now a Simplified Option for claiming the Home Office Tax Deduction. What are the rules?"
Approximately 3.4 million taxpayers claim deductions for business use of a home. Beginning in 2013, the IRS is allowing a simplified option of claiming this deduction for many owners of home-based businesses. The regular rules also remain in effect for 2013 and subsequent years, but taxpayers will have the option of choosing the most tax-advantageous method when preparing their tax return. Rather than basing the home office deduction on a square footage allocation, the new rule is much less cumbersome:
- The deduction is an IRS-set $5 per square foot up to 300 square feet, capped at $1,500.
- Taxpayers can choose either method for any tax year. Once they elect a method for a tax year, they are unable to change to the other method for that same year. However, they can elect different methods in subsequent years.
- The taxpayer can still deduct other qualified home expenses, such as property taxes and mortgage interest, on Schedule A. These deductions do not need to be allocated between personal and business use, as is required under the regular.
- Business expenses unrelated to the home can still be deducted even if the taxpayer uses the simplified method (i.e. advertising, supplies, wages, etc.).
It is also important to note that a home office must still be used regularly and exclusively for business – that threshold has not changed under the new simplified option.
If you would like to discuss whether you qualify for a home office tax deduction, please contact us at (616) 642-9467.