SIMPLIFIED HOME-OFFICE DEDUCTION IN 2013

Tired of tracking all those household expenses to take your Home-Office Business deduction on your taxes? Finding the electric, gas, trash, water, and insurance bills at the end of the year takes time and is a pain! Beginning January 1, 2013, it may be MUCH simpler…and may give you a better deduction!!!

Look at the 6 basic rules to see if you qualify.

Here are the basic provisions to simplify:

-You use a section of your home exclusively for business or if it is for the convenience of your employer;
-You are not carrying a Home-Office loss forward from past years;
-Your business is more profitable than the Home-Office deduction (meaning the Home-Office deduction does not make you have a loss);
-The total square feet used in the business is 300 square feet or less;
-The simplified amount is $5 per square foot;
-The maximum dollar amount allowed is $1500 (300 sq. ft. x $5=$1500);

Thus, if you claim more than 300 square feet-OR- your past Home-Office deductions have been more than $1500-OR- you have a business loss last year, this is NOT for you.

Here is more detail from the Journal of Accountancy.

In Rev. Proc. 2013-13, issued in January, the IRS gave taxpayers an optional safe-harbor method to calculate a deduction for expenses of a business use of a residence under Sec. 280A, effective for tax years beginning in 2013.

Individual taxpayers who elect this method can determine the deduction by multiplying the allowable square footage by $5. The allowable square footage is the portion of the dwelling used in a qualified business use, up to 300 square feet; thus, the maximum safe-harbor deduction is $1,500. The safe harbor is elected on a timely filed original tax return (instead of on Form 8829, Expenses for Business Use of Your Home, which is used for the actual-expense method), and taxpayers are allowed to change their treatment from year to year. However, the election made for any tax year is irrevocable.

No depreciation is allowed for the years in which the safe harbor is elected, but it is permitted in years in which the actual-expense method is used. The revenue procedure gives detailed examples of how depreciation is calculated in a year after the safe-harbor method is used.

To use the safe-harbor method, taxpayers must continue to satisfy all the other requirements for a home office deduction, including that the space be used exclusively for the qualified business purpose and that an employee qualifies for the deduction only if the office is for the convenience of the taxpayer’s employer.

The deduction under the safe-harbor method cannot exceed the amount of gross income derived from the qualified business use of the home, minus business deductions unrelated to the qualified business use of the home. Unlike the limitation under the actual-expense method, however, a taxpayer cannot carry over any excess to another tax year; nor can there be any carryover from an actual-expense method year to a safe-harbor year. Taxpayers sharing a home (for example, roommates or spouses, regardless of filing status), if otherwise eligible, may each use the safe-harbor method, but not for qualified business use of the same portion of the home. The revenue procedure contains detailed rules for use of the home for part of the year. Taxpayers who have a qualified business use of more than one home for a tax year may use the safe harbor for only one home and must use the actual-expense method for the other home or homes.

References:

Simplified home office deduction safe harbor now available. April 2013. Journal of Accountancy. http://www.journalofaccountancy.com/Issues/2013/Apr/Home-office-deduction.htm.

The 5-Minute TaxPro Update. May 2013 eNewsletter. Home Office Deduction. National Association of Tax Professionals.