As of the tax year 2014 taxpayers may now use an optional simplified method when figuring the deduction for business use of their home. This new simplified option can significantly reduce the record keeping burden by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses.
Note: The standard method has some calculations, allocations, and substantiation requirements that are complex and burdensome for small business owners. This simplified option does not change the criteria for who may claim a home office deduction. It merely simplifies the calculation and record keeping requirements of the allowable deduction.
Highlights of the simplified option:
- Standard deduction of $5 per square foot of home used for business (maximum 300 square feet).
- Allowable home-related itemized deductions may be claimed in full on Schedule A. (For example: Mortgage interest, real estate taxes).
- No home depreciation deduction or later recapture of depreciation for the years the simplified option is used.
Selecting a method:
- You may choose to use either the simplified method or the regular method for any taxable year.
- You choose a method by using that method on your timely filed, original federal income tax return for the taxable year.
- Once you have chosen a method for a taxable year, you cannot later change to the other method for that same year.
- If you use the simplified method for one year and use the regular method for any subsequent year, you must calculate the depreciation deduction for the subsequent year using the appropriate optional depreciation table. This is true regardless of whether you used an optional depreciation table for the first year the property was used in business.
Full details on the new option can be found in Rev/Pro 2013-13