For 2013 the IRS has introduced a far simpler, alternative calculation method for taxpayers claiming the home office deduction. The new method simply multiplies the eligible square footage (up to a maximum of 300 square feet) by $5 to determine the allowable deduction.
While simplification of the tax code is usually welcome news, there are several considerations that deserve particular attention:
– The simplified home office deduction is limited to $1,500 (300 square feet x $5).
– The simplified calculation does not replace the actual expense method. Taxpayers may need to calculate the allowable deduction under both methods to determine the option that offers greater savings.
– For homeowners, the simplified method does not allow for a depreciation deduction (or require subsequent depreciation recapture).
In sum, while taxpayers should be familiar with this simplified option it is important to note that this is merely an alternative calculation method. Taking the time to identify and calculate every allowable deduction via the actual expense method may offer a significant reduction in tax liability.
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