Simplified home-office deduction safe harbor announced

BY SALLY P. SCHREIBER, J.D.

On Tuesday, the IRS released Rev. Proc. 2013-13, which gives taxpayers an optional safe-harbor method to calculate the amount of the deduction for expenses for business use of a residence during the tax year under Sec. 280A, beginning with the current tax year.

Individual taxpayers who elect this method can deduct an amount determined by multiplying the allowable square footage by $5. The allowable square footage is the portion of the house used in a qualified business use, but not to exceed 300 square feet. The maximum a taxpayer can deduct annually under the safe harbor is $1,500. The IRS may update the $5 allowance from time to time.

Electing the safe-harbor is done on a timely filed original tax return (instead of on Form 8829, Expenses for Business Use of Your Home, which is used for the actual expense method), and taxpayers are allowed to change their treatment from year-to-year. However, the election made for any tax year is irrevocable.

No depreciation is allowed for the years in which the safe harbor is elected, but it is permitted in the years in which the actual expense method is used. The revenue procedure has detailed examples of how depreciation is calculated in a year subsequent to a year the safe-harbor method is used.

To use the sale-harbor method, taxpayers must continue to satisfy all the other requirements for a home-office deduction, including the requirement that the space in the residence used as an office be used exclusively for that purpose and the limitation that an employee qualifies for the home-office deduction only if the office is for the convenience of the taxpayer’s employer.

The deduction under the safe-harbor method cannot exceed the amount of gross income derived from the qualified business use of the home minus business deductions, and a taxpayer cannot carry over any excess to another tax year. If a taxpayer uses the actual expense method for calculating the deduction and has had his or her deduction limited by the gross income limitation in that year, the taxpayer can deduct this amount in the next year he or she uses the actual expense method, but cannot use the disallowed amount in a year he or she elects the safe harbor. This limit on carryovers for the safe-harbor method means taxpayers must be careful before electing it to be sure they will not lose any of their deduction.   

Taxpayers sharing a home (for example, roommates or spouses, regardless of filing status), if otherwise eligible, may each use the safe harbor method provided by the revenue procedure, but not for qualified business use of the same portion of the home. The revenue procedure contains detailed rules for use of the home for part of the year. It allows taxpayers who have a qualified business use of more than one home for a tax year to use the safe harbor for only one home, but it permits them to use the actual expense method for the other homes.  

Sally P. Schreiber ( sschreiber@aicpa.org ) is a JofA senior editor.

SPONSORED REPORT

8 accounting and auditing issues you can’t afford to ignore

Download this sponsored report for an overview of some of the most important developments accountants and auditors are facing today.

DOWNLOAD

Filing season quick guide — Tax year 2014

Tax season started Jan. 20. Download our “quick guide,” a printable card that contains dollar thresholds, tax tables, standard amounts, credits, and deductions to keep at your fingertips during tax season.

TAX NEWS

Expired tax provisions extended for 2014

President Barack Obama signed legislation that retroactively extended more than 50 expired tax provisions for 2014, allowing taxpayers to take advantage of a host of tax incentives during this filing season.