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.
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