The New IRS Home Office Deduction
About four (4) million workers in the United States work from home. Starting with the 2013 tax year, the Internal Revenue Service is allowing a simplified home-office deduction.
The rationale behind the new method of deducting these expenses is that it simplifies the record keeping that most people are not complying with currently which causes income tax audit issues. Therefore, this new method is good for people who don’t like record keeping. There is a downside to the simplified method. The new method has a cap of $1,500 for the deduction, while the average write-off of the home office deduction was about $2,500 in past years. The new write-off allows a full deduction for mortgage interest and property taxes on Schedule A, so that needs to be factored into whether the new method makes sense for you.
The new method also takes a one size fits all approach, and sets the value of the deduction at $5.00 a sq. foot of home office space (up to 300 sq. feet), which will be to low for an urban location like New York City, vs. the traditional approach of deducting the actual expenses for the home office space (rent, mortgage interest, utilities, etc). As with the traditional approach, to be eligible for the deduction the home office must be used regularly and exclusively as a place of business and the needs to be the principal business location. Employees, as opposed to the self employed can also take the deduction if the home office is for the convenience of the employer. Taxpayers will be able to switch back and forth between the two methods, but that will complicate the record keeping for items such as depreciation.
Attorney Timothy Hart
Timothy S Hart, the founding partner of the tax law firm of Timothy S. Hart Law Group, P.C. is both a New York Tax Lawyer & Certified Public Accountant. His area of expertise includes innovative solutions to solve your Internal Revenue Service and New York State tax problems, including tax settlements through the Federal and New York State offer in compromise programs, filing unfiled tax returns, voluntary disclosures, tax audits, and criminal investigations. [ Attorney Bio ]