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Simplified Home Office Deduction
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If you regularly use a portion of your home exclusively for your business, you may qualify to deduct business-use-of-home expenses.


Source: GreenStone Farm Credit Serivces

Simplified Home Office Deduction


If you regularly use a portion of your home exclusively for your business, you may qualify to deduct business-use-of-home expenses. Beginning Jan. 1, 2013, the Internal Revenue Service (IRS) began allowing two different ways to calculate this:  the actual expenses method (old way) and  the simplified method (new way).
 
The actual expenses method of calculating the home office deduction is based upon the office square footage, divided by the home’s total square footage. Then this percentage is multiplied by actual expenses which is the sum of: home mortgage interest, real estate taxes, home insurance, home repairs, utilities, home depreciation, etc. to calculate the home office deduction.
 
Home Office Deduction = ((Office Square Footage)/(Total Square Footage of Home)) × (Actual Expenses)
 
Beginning with the 2013 tax year, there is an optional safe harbor method to calculate the home office deduction. The simplified method is equal to $5 multiplied by the qualified square footage, limited to 300 square feet or a $1,500 deduction.
 
Simplified Home Office Deduction = $5 × Square Footage of Home Office
 
The election to use the simplified method is elected on a year-by-year basis. Also, taxpayers that use the simplified method can deduct all of their allowable itemized deductions for mortgage interest and property taxes.
 
In the past, many chose not to take the deduction due to IRS scrutiny, or the perception of IRS scrutiny, which makes this new safe harbor method very attractive.
 
This notice is required by IRS Circular 230, which regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding information and or any attachment is a written tax advice communication, it is not a full "covered opinion." Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. Such assurances can be granted only by securing a covered opinion letter. Should you wish to explore the option of receiving a covered opinion letter relating to a tax advice matter, please contact us.