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Robert Longley

IRS Simplifies Home Office Deduction

By January 21, 2013

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Taxpayers won't get to use it until next year, but the IRS has at last provided a simplified option for claiming the home office deduction for owners of home-based businesses and some home-based workers.

The new simplified deduction will allow qualifying taxpayers to deduct up to $1,500 per year based on $5 a square foot for up to 300 square feet of their homes devoted to business use.

Taxpayers will still have the option of using the far more complex 43-line home office deduction form (Form 8829), which allows for deduction of allocated expenses, depreciation and carryovers of unused deductions.

While the IRS notes that while homeowners using the new option cannot depreciate the portion of their home used for business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on their standard Schedule A (Itemized Deductions).

In addition, business expenses unrelated to the home, such as advertising, supplies and wages paid to employees will still be fully deductible under the new option.

All of the current restrictions on the home office deduction will still apply under the new option.

The new simplified option will become available starting with the 2013 return most taxpayers file early in 2014. More information on the new option can be found in the IRS' Revenue Procedure 2013-13. The IRS website also provides more information on the home office deduction in general.

Also See: Do You Need a Federal Tax ID Number?

The IRS estimates the new simplified option will save the nearly 3.4 million taxpayers who claim the home office deduction a total of about 1.6 million hours of tax-work annually.

"This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction," said Acting IRS Commissioner Steven T. Miller in a press release. "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."

Also See: Taxpayer Advocate Slams Income Tax Complexity

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