The IRS delivered some good news last week, announcing a simplified option for taking a deduction for the costs associated with running an office from a residence. If you already have a business office in your home, you know that the process for preparing the form to claim a deduction has been a painful one.
The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, should reduce your paperwork and recordkeeping burden. Currently, you have to fill out a 43-line form (Form 8829), often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.
Under the new option, you cannot depreciate the portion of the home used in a trade or business, but you can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.
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.
The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Revenue Procedure 2013-13, posted on IRS.gov.