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Effective January 1, 2013
By Andrew D. Schwartz CPA
The IRS has introduced a simplified option for many home-based businesses and some home-based workers to use to figure their deductions for the business use of their home, effective January 1, 2013.
The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.
An Easy Path
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 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.
No Allocation
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 of their tax return. These deductions need not be allocated between personal and business use, as is required under the regular method.
Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.
Restrictions
Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.
Assessment
The new simplified option is available starting with the 2013 return which most taxpayers file early in 2014.
Conclusion
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Filed under: Taxation | Tagged: Andrew D. Schwartz CPA, Home-Office Deduction, tax | 2 Comments »
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