Home Office Deduction: IRS Offers a Simplified Calculation Option, But the Qualifying Rules Haven’t Changed

ID-10067211The IRS recently announced a new “standard deduction”  option for people claiming the home office deduction. People claiming the deduction will have the option (starting with tax returns for 2013) of taking a flat $5/square foot of office space (up to a maximum deduction of $1,500), or calculating the deduction based on actual expenses. It appears that taxpayers will have the option of choosing from year-to-year which method to use.

This is all well and good, I suppose. It seems like a taxpayer-friendly move. Rather than having to pro-rate your utility bills, mortgage and property taxes, you can just take a flat dollar amount per square foot.

But my concern is, people will be led astray into thinking that it’s now “easier” to qualify for the deduction. Take the misleading headline to this article in Business Week: “Why You Might (Finally) Take the Home Office Deduction.” The implication is, more people will qualify. This is not true.

Already, I’ve talked to taxpayers who have said “I heard about the IRS’s home office ruling. That’s good news for me – I can finally write off my office, right?”

Let me shout this from the highest hill:

THE IRS HAS UNVEILED A SIMPLIFIED CALCULATION OPTION, BUT THE RULES TO QUALIFY FOR A DEDUCTION REMAIN THE SAME. IF YOU DIDN’T QUALIFY FOR THE DEDUCTION BEFORE, YOU WON’T QUALIFY NOW.

We all have some part of our house or apartment that we call a “home office.” But for tax purposes, you only have a true “home office” if you have an area used regularly and exclusively (as in, 100%) for business purposes. If you’re an employee, you have to be using the space “for the convenience of your employer.” These rules have not changed.

You can read the specifics of the home office rules in IRS Publication 587.

So, is this standard deduction a good thing? Yes, it might be, from a simplification standpoint. But it’s not some sort of miracle “new” deduction available for all to take. You have to qualify for the deduction in order to take it, and those rules have not changed.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”

4 Responses to “Home Office Deduction: IRS Offers a Simplified Calculation Option, But the Qualifying Rules Haven’t Changed”

  1. Bruce Sullivan April 5, 2013 at 8:00 am #

    Very interesting. The home office deduction has always gave me pause.

    • Jason Dinesen April 6, 2013 at 5:39 am #

      Bruce: I think it gives a lot of people pause!

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