The Simplified Option for Home Office Deduction

If you’re one of the millions of taxpayers who use their homes for business and might be able to claim the home office deduction–but haven’t taken advantage of it because you thought it was too complicated–then you might be interested in the simplified option.

Available since tax year 2013, the optional home office deduction is capped at $1,500 per year and is based on $5 a square foot for up to 300 square feet of office space.

Taxpayers claiming the home office deduction are generally required to fill out a 43-line form (Form 8829, Expenses for Business Use of Your Home) often with complex calculations of allocated expenses, depreciation, and carryovers of unused deductions. In contrast, taxpayers electing to use the optional simplified method complete a short worksheet in the tax instructions, and then enter the result on the tax return. There is a special calculation for daycare providers.

Most self-employed individuals claim the home office deduction on Form 1040, Schedule C, Line 30, farmers claim it on Schedule F, Line 32, and eligible employees claim it on Schedule A, Line 21.

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. 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.

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. Exclusive use isn’t required if the dwelling unit is used for storage of inventory and is the only fixed location of the business, or if it is regularly used for the provision of daycare services.

Regardless of the method used to compute the deduction, home office expenses in excess of the gross income limitations are not deductible. Deductible expenses for business use of a home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. In general, expenses for the parts of the home not used for business are not deductible.

Please contact our office, if you would like more details about the simplified home office deduction.

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