On Jan. 15, 2013, the Internal Revenue Service announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.
The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.
The new option allows a deduction of $5 per square foot up to 300 square feet, for a maximum deduction of $1,500 per year. This will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.
Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they 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.
Current restrictions on the home office deduction still apply under the new option. These restrictions include that the home office must be used regularly and exclusively for business and the deduction limited to income derived from the particular business.
Further details on the new option can be found in Revenue Procedure 2013-13, posted today on IRS.gov.