Home Office Deduction: The IRS Offers a New Method

home officeStarting with the 2013 return, the IRS released Rev. Proc 2013-13 which gives taxpayers an optional safe-harbor method to calculate the amount of deduction for expenses for qualified business use of a residence.

Individual taxpayers who elect this method can deduct an amount determined by multiplying the allowable square footage by $5.  The allowable square footage is the portion of the house used in a qualified business use, but not to exceed 300 square feet.  Therefore, the maximum a taxpayer can deduct annually under the safe harbor is $1,500.

The taxpayer can still use the actual method, where first, the percentage of square footage for the office to that whole house is determined.  Then that percentage is applied to the various expenses such as, property taxes, mortgage interest, insurance, maintenance and depreciation.  If the safe harbor method is used, no depreciation is taken; 100% of the real estate taxes and mortgage interest are deducted on Schedule A.  Any other expenses used in the actual method are not deducted.  A taxpayer may elect to change methods on an annual basis.

There may be a number of reasons that a taxpayer might choose either method.  Please contact your ShindelRock tax professional to help you analyze the method that would be best for you.