Tax Question of the Week: Have Home Office Deduction Rules Changed for 2013?February 27, 2014
New option makes it simpler for qualifying taxpayers to include home office deductions on their 2013 tax returns.
As people are preparing their 2013 tax returns many are wondering if there are any changes to home office deductions. Yes, there are and the new option makes it simpler for qualifying taxpayers to include home office deductions on their 2013 tax returns.
The IRS announced a simplified option that many owners of home-based businesses and some home-based workers may want to use to figure their deductions for the business use of their homes. The new option will “reduce the paperwork and record keeping burden on small businesses by an estimated 1.6 million hours annually,” according to the IRS.
Beginning Jan. 1, 2013 taxpayers can use this option on their tax returns filed in 2014. It’s an alternative to the current calculation, allocation and substantiation requirements. However, because the new option has limits, a taxpayer may get a larger deduction by continuing to use the current rules. The optional deduction is capped at $1,500 each year based on $5 per square foot for up to 300 square feet.
The current rules that are effective for 2012 returns require taxpayers to fill out the 43-line IRS Form 8829. It may contain complex calculations of allocated expenses, depreciation and carryovers of unused deductions.
The new rules effective for the 2013 tax year and going forward require taxpayers claiming the optional deduction to complete a different, simplified form. They can’t depreciate the portion of their homes used in a trade or business, but they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions. Unlike the current deductions that need to be allocated between personal and business use, these deductions do not need to be.
Be aware that the new option doesn’t change the current restrictions on home office write-offs, such as requirements that a home office be used “regularly and exclusively” for business and that the deduction be limited to the income derived from a particular business.
A taxpayer has the option to select which methods they would like to use when calculate actual home office expenses from year to year. An election for any taxable year, once made, is irrevocable. “A change from using the new method in one year to actual expenses in a succeeding taxable year, or vice-versa, is not a change in method of accounting” and doesn’t require IRS consent, according to the IRS.
For more information about the simpler rules for deducting the cost of a qualifying home office please contact any member of our Tax Services Team at firstname.lastname@example.org or call 401-274-2001.