Here’s an Easier Way to Take Your Home-Office Deductions

If you qualify for a home-office deduction, there’s good news. Starting this year, there’s a simpler way to claim it.

As you may know, taxpayers who use a home office exclusively and regularly for work are able to take a deduction for the space. And more than a million taxpayers claimed deductions for business use of a home for the 2012 tax year, according to the Internal Revenue Service (IRS). However doing so wasn’t easy.

Taxpayers who wanted to claim the deduction had to complete a lengthy form. Expenses such as utilities and property insurance had to be allocated between personal use and business use. Many people avoided taking the deduction because the form was so complex.

A new option: Now, taxpayers can claim $5 per square foot of space that meets the definition of a qualified home office up to a maximum of 300 square feet, or $1,500. As an example, if your office is 10 feet by 10 feet – 100 square feet – your total home-office deduction would be $500. (Taxpayers can continue to take home-related itemized deductions, such as mortgage interest, on Schedule A.)

This new option saves time, but that doesn’t mean you’ll want to use it. If your home-office deductions are greater than the $1,500 limit, you’ll want to use the old method.

Also, note that this new option does not change the eligibility rules for taking the deduction. For a complete list of home-office deduction qualifications, see IRS Publication 587, or discuss it with your advisor.

The information contained in this article is merely a summary of our understanding and interpretation of some of the current laws and regulations. We cannot give tax advice.