Simplified home-office deduction

02-05-2013Tax Information

On January 15, 2013, the IRS released Rev. Proc. 2013-13, which gives taxpayers an optional safe-harbor method to calculate the amount of the deduction for expenses for business use of a residence during the tax year under Sec. 280A, beginning with the current tax year. The highlights are:

• Individual taxpayers who elect this method can deduct an amount determined by multiplying the allowable square footage by $5. The allowable square footage is the portion of the house used in a qualified business use, but not to exceed 300 square feet. The maximum a taxpayer can deduct annually under the safe harbor is $1,500.

• Taxpayers are allowed to change their treatment from year-to-year. However, the election made for any tax year is irrevocable.
• No depreciation is allowed for the years in which the safe harbor is elected, but it is permitted in the years in which the actual expense method is used.
• Taxpayers must continue to satisfy all the other requirements for a home-office deduction, including the requirement that the space in the residence used as an office be used exclusively for that purpose and the limitation that an employee qualifies for the home-office deduction only if the office is for the convenience of the taxpayer’s employer.

The deduction under the safe-harbor method cannot exceed the amount of gross income derived from the qualified business use of the home minus business deductions, and a taxpayer cannot