The Internal Revenue Service announced Jan. 15 a simplified option that many owners of home-based businesses and certain home-based workers may use to calculate their deductions for the business use of their homes. The new option will be available beginning with the 2013 return that’s filed in early 2014.
In tax year 2010, the most recent year for which figures are available, roughly 3.4 million taxpayers claimed deductions for business use of a home, often referred to as the home office deduction.
The new option, which is designed to offer taxpayers an easier way to claim the home office deduction, is capped at $1,500 per year based on $5 per square foot for up to 300 square feet and is expected to reduce the recordkeeping obligations on small businesses by an estimated 1.6 million hours per year.
Currently, people claiming the home office deduction typically are required to complete a 43-line form (Form 8829) often with detailed calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers who claim the new optional deduction will use a much shorter form.
“This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction,” Acting IRS Commissioner Steven T. Miller, said in a news release. “The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013.”
Though homeowners taking advantage of the new option cannot depreciate the area of their home used in a trade or business, they can claim permissible mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions are not required to be allocated between personal and business use, as is mandated under the regular method, the IRS said.
Business expenses unrelated to the home, such as advertising, supplies and wages paid to workers still will be 100 percent deductible.
Existing limitations on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit related to the income received from the specific business, still apply under the new option.
Additional information on the option can be located in Revenue Procedure 2013-13.