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Home Office Deduction-Changes for 2013



TaxConnections Picture - home officeIf you use your home for business, there are expenses you can deduct on your tax return. The home office deduction is available to both home owners & renters alike. The home must be used by a self-employed individual or an employee who works from home for his employer’s convenience.

This deduction has been available for a few years now, however with the tax year beginning January 1st, 2013 (filing starting January 1st, 2014), the Internal Revenue Service issued Rev Proc. 2013-13. This revenue procedure details an optional safe harbor available to individual tax payers for calculating a home office deduction.

The individual can claim the Home Office Deduction based on either the Simplified Method or the Regular Method (Details Follow).

Simplified Method: 

•  A standard deduction of $5 per sq foot for a home used for business up to a maximum of 300 sq feet.

•  No home office depreciation deduction is allowed nor is a later recapture for the years the simplified option was used.

•  Allowable home related expenses, such as, Mortgage Interest or Property Taxes is claimed in full on Schedule A.

•  Expenses in excess of income cannot be carried forward. Nor can a loss carryover from a previous regular method used be claimed.

Regular Method:

•  Actual Expenses determined for percentage of the home used for the business will be used.

•  Home related expenses will be apportioned between Schedule A & the business Schedule C or F.

•  Depreciation and depreciation recapture for portion of home used for business can be claimed.

•  Amount in excess of gross income limitation can be carried forward.

What Method Can I Use?

•  Either of the above methods can be used for the tax year.

•  Once the method is chosen for a taxable year, it cannot be changed to the other method for the same tax year.

•  If the simplified option is used one year & later changed to the regular method, the depreciation for the subsequent year should be calculated using appropriate optional depreciation table.

•  The regular method requires detailed record keeping but the simplified option does not.

•  The home office deduction under the simplified option is limited to $1500.

•  Both the methods should be compared to yield the most beneficial deduction to the tax payer.

Bibliography:

Revenue Procedure 2013-13

I am Manasa Nadig, enrolled to practice and represent taxpayers with the Internal Revenue Service. I have been in the business of Tax Preparation & Tax Planning since 1999. My firm, MN Tax Solutions, LLC is based in Michigan, USA. Please connect with me on TaxConnections for more information about myself & the services provided by my firm.

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4 comments

  1. Manasa, very nice post laying out the basic provisions for the home office deduction. In most cases, it would seem that the simplified method would not make sense. It would have to be a pretty simple set up where actual expenses would be really small.

    • Manasa Nadig says:

      Thanks Steve! You are right, the simplified method is beneficial to those who have lower home office expenses. The fact that there is an option to choose between the 2 makes life easier to many who don’t keep track of all the expenses.

  2. yoganjali says:

    Dear Manasa, Very informative page. Thank you for putting this all together for peple like me having home office!

  3. Manasa Nadig says:

    Thank you very much Yoganjali. I am glad you can make use of this information. Keep coming back for more informational posts.

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