The IRS, in an attempt to ease the burden on small business, has introduced procedures to significantly simplify the home office deduction rules. These rules, pending comment and final approval, would be effective for the 2013 tax year.
Under the proposal, those businesses eligible for the home office deduction would be allowed to deduct up to $1,500 per year. The new option allows qualified taxpayers to deduct annually $5 per square foot of home office space on up to 300 square feet, for as much as $1,500 in deductions.
The current rules which take a proration of expenses incurred based on the square footage of the home office will still be available.
Under the new option a qualified taxpayer cannot depreciate the portion of their home used in a trade or business. They can, however, claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. This method should also eliminate the need to recapture depreciation taken on the home office when we sell.
Once the IRS finalizes these rules, we will provide you with more detailed information. If you have any questions in the meantime regarding the existing or pending rules related to your home office deduction, please do not hesitate to contact us.