by Kendall Tyson
Many individuals who have a home office will be happy to know that taxpayers may use a simplified option when figuring their home office deduction. Under the regular method, taxpayers must track their actual expenses, including mortgage interest, real estate taxes, insurance, utilities, repairs and depreciation. The taxpayer is then allowed a percentage of those deductions based on percentage of the taxpayer’s home devoted to business use.
However, under the simplified option, the taxpayer’s deduction is $5 per square foot of home used for business, with a maximum of 300 square feet. Mortgage interest and real estate taxes are then claimed in full on Schedule A. There is no deduction for depreciation expense, but there is also no recapture of depreciation upon the sale of the home.
The taxpayer’s record keeping is greatly reduced under the simplified option, but the criteria for who may claim the home office deduction has not changed. The two basic requirements for your home to qualify as a deduction still include:
- Regular and Exclusive Use – You must regularly use part of your home exclusively for conducting business.
- Principal Place of Your Business – You must use your home as your principal place of business. If you use both your home office and another location outside of your home, but your home office is substantially and regularly used to conduct business, you may still qualify for the deduction.
The IRS began allowing the simplified option in tax year 2013 (returns filed in 2014). A taxpayer may use the simplified option for one year and then use the regular option the next year, but once a taxpayer has chosen a method for a taxable year, the taxpayer cannot later change to the other method for that same year.
Langdon & Company LLP has helped several clients determine which home office deduction method is most tax advantageous for them. For questions about which method would be best for you, please contact our office.