New Simplified Home Office Deduction

New Simplified Home Office Deduction

Home office expenses can be an overlooked source of valuable business deductions.  Many business owners don't claim them because they fear (incorrectly) that home offices are an audit "red flag," or because the recordkeeping is a pain.  (Form 8829, which helps calculate the deduction, includes 43 lines and asks you to "see instructions" 17 times.)  But now the IRS has released a "safe harbor" method that may make home office deductions more accessible. 

The new procedure, outlined in Revenue Procedure 2013-13, lets you deduct a flat rate of $5 per square foot, for up to 300 feet of qualifying office space.  You'll still deduct your mortgage interest and property tax attributable to the space on Schedule A as usual.  But you won't have to calculate any actual expense or depreciation deduction for the space.  On the downside, if your simplified home office deduction reduces your income below zero, you can't carry if forward to future years, as you can with the regular deduction. 

You can determine year-by-year which home office deduction method to use.  You don't have to elect one and lock yourself into it for the future. 

Do you have a space in your home that you use "regularly and exclusively" for business, but don't specifically deduct it as such?  To see if the new safe harbor makes sense for you, call us at 970.668.0772.

 Sincerely,

Larry D. Stone, CPA