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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.

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.

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Posted:
October 30, 2013

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