If 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).
• 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.
• 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.