IRS Offers Simpified Home-Office Deductions

For 2013, there is a new simplified method of claiming home-office deductions. The new procedure doesn't replace the current actual cost method, but it offers a "safe-harbor" alternative.

Under the current "actual" method, you determine the actual home office expenses such as depreciation, property taxes, insurance, utilities, repairs and mortgage interest (or rent, if a tenant). Deductible expenses are based on the percentage of your home devoted to business use (square footage of your home office to the entire home).

Under the optional "simplified" new method, you simply multiply the square footage of your home office by $5.00. The maximum allowable area for for home-office deductions is 300 square feet, which caps the deduction at $1,500.

The following considerations apply to either method:

  • The area claimed must be regularly and exclusively for business. This means it must be either your principle place of business or a place where you meet or deal with customers in the ordinary course of business. If you're an employee, the use of your home must be for your employer's convenience.
  • For each year, the deduction is limited to the net business income remaining after all other deductions have been subtracted.
  • Business expenses not connected to the use of your home (such as supplies, advertising, and wages) remain fully deductible.

You are permitted to change between the simplified and actual methods from year to year, but the method you choose is irrevocable for that year. If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.