If you work from home, you may be familiar with the home office deduction, which is available for taxpayers who use their home for business. A few years back, the IRS created a simpler option to calculate the tax benefits for the business use of your home.
This does not change the rules for those who may claim a home office deduction, however. It merely simplifies the calculation and record keeping requirements, which saves time and a massive headache.
Here are five things to know about the simplified home office deduction.
- It started in 2013: You could have used the simplified method starting with your 2013 taxes. If you use this method to claim the home office deduction, you will not need to calculate your deduction based on actual expenses. You may instead multiply the square footage of your home office by a prescribed rate.
- Deduct up to $1,500: The rate is $5 per square foot of the part of your home used for business. The maximum footage allowed is 300 square feet. This means the most you can deduct using the new method is $1,500 per year.
- You have options: You may choose either the simplified method or the actual expense method for any tax year. Once you use a method for a specific tax year, you cannot later change to the other method for that same year.
- Sorry, you can’t claim depreciation: If you use the simplified method and you own your home, you cannot depreciate your home office. You can still deduct other qualified home expenses, such as mortgage interest and real estate taxes. You will not need to allocate these expenses between personal and business use. This allocation is required if you use the actual expense method. You’ll claim these deductions on Schedule A, Itemized Deductions.
- Still fully deduct business expenses: You can still fully deduct business expenses that are unrelated to the home if you use the simplified method. These may include costs such as advertising, supplies and wages paid to employees.