Beginning in tax year 2013 (returns filed in 2014), taxpayers may use a simplified option when figuring the deduction for business use of their home. The simplified home office deduction may be very beneficial to taxpayers in different situations. You elect to use the simplified method by claiming the amount of deductible expenses allowed under the simplified method on your timely filed, original federal income tax return for the taxable year.
Simplified Home Office Deduction Form 8829
For 2013 returns filed in 2014, the IRS is now offering a simplified home office deduction. The new optional deduction is $5 for each square foot of home office space, up to a maximum of 300 square feet. That comes to a maximum $1,500 annual home office deduction. You elect to use the simplified method by claiming the amount of deductible expenses allowed under the simplified method on your timely filed, original federal income tax return for the taxable year.
Information about the Simplified Home Office Deduction
The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.
Highlights of the simplified home office deduction:
- Standard deduction of $5 per square foot of home used for business (maximum 300 square feet).
- Allowable home-related itemized deductions claimed in full on Schedule A. (For example: Mortgage interest, real estate taxes).
- No home depreciation deduction or later recapture of depreciation for the years the simplified option is used.
Instead of filling out Form 8829, you’ll use a worksheet in the Schedule C instruction book and enter your simplified home-office deduction amount on Schedule C.
Selecting the Simplified Home Office Method
- You may choose to use either the simplified method or the regular method for any taxable year.
- You choose a method by using that method on your timely filed, original federal income tax return for the taxable year.
- Once you have chosen a method for a taxable year, you cannot later change to the other method for that same year.
- If you use the simplified method for one year and use the regular method for any subsequent year, you must calculate the depreciation deduction for the subsequent year using the appropriate optional depreciation table. This is true regardless of whether you used an optional depreciation table for the first year the property was used in business.
Limitation on Home Office Deduction
Remember, the amount of the deduction computed using the simplified method cannot exceed the gross income derived from the qualified business use of the home for the taxable year, reduced by the business deductions that are unrelated to the qualified business use of the home. Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible. Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.