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New Simplified Option for Deducting Home Office Expenses

New Simplified Option for Deducting Home Office Expenses

Rule may apply to pastors and church staff that conduct work from home.
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The Internal Revenue Service announced earlier this year a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes. Pastors or church staff members who conduct a substantial portion of their work from a home office may qualify.

The new optional deduction, capped at $1,500 per year based on $5 per square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

"This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction," said Acting IRS Commissioner Steven T. Miller. "The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013."

The new option provides eligible taxpayers an easier path to claiming the home-office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation, and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible.

Current restrictions on the home office deduction—such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business—still apply under the new option. For detailed guidance on the requirements for deducting costs related to business use of a home, see IRS Publication 587, Business Use of Your Home.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Revenue Procedure 2013-13.

Learn more about the home office deduction in the 2014 Church & Clergy Tax Guide.

Michael E. Batts is the managing partner of Batts Morrison Wales & Lee, P.A. (nonprofitcpa.com), a CPA firm dedicated exclusively to serving nonprofit organizations across the United States from its offices in Orlando and Atlanta. Mike is an Editorial Advisor for Church Law & Tax Report. He currently chairs the Commission on Accountability and Policy for Religious Organizations advising Senator Charles Grassley on federal policy matters affecting religious organizations.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations."

October 30, 2013

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