No commute! Meetings in pajamas! Working at home can be great for a number of reasons. But, just because you recognize your home as your office doesn’t mean that the IRS does. Historically, the home office deduction has been difficult to calculate and claim. Because of the difficulty, many taxpayers who qualified for the deduction have failed to claim it.
But, the IRS has announced a new, and much simplified, manner of calculating and claiming the deduction. Starting with 2013 tax returns, individual taxpayers may use an optional safe harbor method to determine the amount of deductible home office expenses. This new safe harbor method is an alternative to the current method, which involves calculation, allocation and substantiation of actual expenses. The new optional deduction is capped at $1,500 per year, with taxpayers being able to deduct up to $5 a square foot of home office space, up to a maximum of 300 square feet.
In order to qualify for the deduction, the home office must be used regularly and exclusively as the principal place of business, as a place to meet with clients or customers in the normal course of business, or in the case of a separate structure that is not attached to the dwelling unit, in connection with the taxpayer’s trade or business. The deduction is limited to the income derived from the trade or business, an amount in excess of the gross income limitation is disallowed and may not be carried over.
Homeowners who use the optional safe harbor method to calculate the deduction cannot depreciate the portion of the home used in their trade or business. Mortgage interest, real estate taxes and casualty losses will be claimed as itemized deductions on Schedule A, but they do not need to be allocated between personal and business, as is required under the regular method. Taxpayers may elect from year to year whether to use the safe harbor method or to calculate and substantiate actual home office expenses. The election must be made on a timely filed original return, the election for any taxable year, once made, is irrevocable.
Have questions about how to calculate the home office deduction? Can’t decide which method to use? Contact Rea & Associates. Our Ohio tax professionals will help you to determine the best method for calculating and claiming the home office deduction. Give us a call from your home office, wearing your pajamas if you like – we’ll never be the wiser!
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.