Tax Tip: Home Office Deduction Safe Harbor

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In a newly issued Revenue Procedure 2013-13, effective for tax years starting on or after 1/1/2013, the IRS has created a safe harbor for the home office deduction calculation. The safe harbor is $5 times the home office square footage, for a maximum of $1,500. The safe harbor is in lieu of the substantiation of actual expenses otherwise required under IRC 280A.

If the safe harbor is used:

  •  The safe harbor is the total deduction. No depreciation or any other costs can be taken in addition to the safe harbor amount.
  • The taxpayer can take 100% of the mortgage interest and property taxes as an itemized deduction on schedule A. No reduction of these expenses are required.
  • Disallowed home office expenses that were carried over from prior years cannot be used in the year the safe harbor is taken. These amounts continue to be carried over and are usable in a year in which actual (substantiated) expenses are claimed.
  • The taxpayer can elect safe harbor or substantiated expenses year-by-year.

In general, to take the home office expense:

  • The space must be regularly and exclusively used for business purposes
  • For employees, the space must be for the convenience of the employer
  • The space need not be a separate room, but can be a section of a room separated by some physical demarcation to distinguish it from personal use space.

For further information, please contact your Aronson tax professional or Laurence Rubin, Aronson’s tax controversy lead partner, at 301.222.8212.

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  • AndrewWayne

    I found interesting that the IRS estimated a decrease of 1.6 million hours annually of paperwork and recordkeeping for small businesses, which is quite nice. Indeed taxpayers may elect from tax year to tax year whether to use the safe harbor method or actual expense method, but once made, an election for the tax year is irrevocable. The IRS also set various limits on the safe harbor, which can be read in this article: http://www.prestinaegele.com/irs-introduces-simplified-method-for-claiming-home-office-deduction
    Even if the simplified method is not effective for 2012 tax year returns being filed during the current 2013 filing season, taxpayers can consider this new home office deduction when tax planning in 2013, right?

One thought on “Tax Tip: Home Office Deduction Safe Harbor

  1. AndrewWayne

    I found interesting that the IRS estimated a decrease of 1.6 million hours annually of paperwork and recordkeeping for small businesses, which is quite nice. Indeed taxpayers may elect from tax year to tax year whether to use the safe harbor method or actual expense method, but once made, an election for the tax year is irrevocable. The IRS also set various limits on the safe harbor, which can be read in this article: http://www.prestinaegele.com/irs-introduces-simplified-method-for-claiming-home-office-deduction
    Even if the simplified method is not effective for 2012 tax year returns being filed during the current 2013 filing season, taxpayers can consider this new home office deduction when tax planning in 2013, right?

    February 22, 2013 at 6:49 am

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