While most things having to do with taxes and the IRS tend to go from simpler to more complex, occasionally the IRS does something to make our lives easier. In this case, the IRS has simplified how we can calculate the Home Office Deduction. Rev. Proc. 2013-13 outlines a safe harbor calculation to replace the cumbersome allocation of home expenses.
Generally, someone who uses space in their home strictly for their business or work can allocate a portion of their expenses based on the square footage of their workspace divided by the square footage of their home. This allows individuals to write off a fraction of their mortgage interest, insurance, taxes, utilities, repairs, etc. Of course, the record keeping aspect of this deduction has been anything from inconvenient to prohibitive.
Under the new rule, taxpayers can calculate the deduction by multiplying the square footage of their home work area by $5 up to 300 square feet, for a maximum deduction of $1,500. The work area must be used exclusively for business or work purposes. Limitations on itemized deductions will still apply for home office deductions taken by employees.
While this new rule will save lots of time and record keeping, please note that it is available for tax years starting January 1, 2013. So don’t throw out your 2012 home office receipts!