IRS Announces Home Office Deduction Safe Harbor

Home officeThe IRS recently released Rev. Proc. 2013-13, which provides an optional safe harbor method that individual taxpayers may use to determine their home office expense deduction.  The new method is an alternative to the current requirements of IRC § 280A and is effective for tax years beginning on or after January 1, 2013.

The safe harbor method calculates your home office deduction by taking the square footage of your office (to a max of 300 sq. ft.) and multiplying it by a prescribed rate.  The current rate is $5 per sq. ft., but that may be updated in the future.  The new method does not allow a deduction for space that would not otherwise qualify for a home office deduction; it only simplifies the method of calculating the deduction.

While $1,500 might not seem like much of a deduction, you have to consider that you will still be able to take your entire home mortgage interest and real property tax deductions on Schedule A.  These deductions need not be allocated between personal and business use, as is required under the regular method.  You will probably need to calculate the deduction both ways and see which method offers the biggest benefit.

You can choose whether or not to use the safe harbor method on a year-by-year basis.  For any year that a taxpayer elects to use the safe harbor method, the depreciation deduction allowable for their home office is deemed to be zero.  In theory, this should offer an additional benefit in that you will avoid having to recapture home office depreciation when selling your home.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services in greater Pittsburgh, including the communities of Allison Park, Hampton, Shaler, and Glenshaw.

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