Home Office Deduction- Changes for 2013

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If you use your home for business, there are expenses you can deduct on your tax return. The home office deduction is available to 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 long time now, however with the tax year beginning January 1st, 2013 (filing in 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). 

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Simplified Option: 

• 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. 

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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. 

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What Method do 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: 

1. Revenue Procedure 2013-13
2. Internal Revenue Service
3. AICPA.org

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