Dec 12, 2016
This simplified method does not change the requirements for who may claim a home office deduction, it just provides eligible taxpayers a shortcut to claiming the deduction.
Highlights of the simplified method:
- Standard deduction of $5 per square foot of home used for business using 300 square feet as the maximum. Therefore, the maximum deduction is $1,500 per year under this method.
- Mortgage interest and real estate taxes are claimed in full on Schedule A.
- No home depreciation deduction or later recapture of depreciation for the years the simplified method is used.
Comparison of methods
|SIMPLIFIED OPTION||REGULAR METHOD|
|Deduction for home office use of a portion of a residence allowed only if that portion is exclusively used on a regular basis for business purposes||Same|
|Allowable square footage of home use for business (not to exceed 300 square feet)||Percentage of home use for business|
|Standard $5 per square foot used to determine home business deduction||Actual expenses determined and records maintained|
|Home-related itemized deductions claimed in full on Schedule A||Home-related itemized deductions apportioned between Schedule A and business schedule (Schedule C or F)|
|No depreciation deduction||Depreciation deduction for portion of home used for business|
|No recapture of depreciation upon sale of home||Recapture of depreciation on gain upon sale of home|
|Deduction cannot exceed gross income from business use of home less business expenses||Same|
|Amount in excess of gross income limitation may not be carried over||Amount in excess of gross income limitation may be carried over|
|Loss carryover from use of regular method in prior year may not be claimed||Loss carryover from use of regular method in prior year may be claimed if gross income test is met in current year|
By: Diane Allman, CPA