PHOENIX, Ariz. – The Internal Revenue Service recently announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.
In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home. The new optional deduction, capped at $1,500 per year based on $5 per square foot for up to 300 square feet, will reduce the paperwork and record keeping burden on small business by an estimated 1.6 million hours annually.
The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are required to fill out the lengthy Form 8829 with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. The new form will be significantly simplified.
“This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction,” IRS Commissioner Steven T. Miller said. “The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013.”
Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method. Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.
Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply.
The new option will be available starting with the 2013 return most taxpayers file in early 2014. Further details can be found in Revenue Procedure 2013-13.
Public comment invited
The IRS welcomes public comment on this new option to improve it for tax year 2014 and beyond. Comments may be submitted via email to firstname.lastname@example.org; please include “Rev. Proc. 2013-13“ in the subject line. The deadline for comment is Apr. 15, 2013.
Submitted by: IRS Media Relations