Claiming the Home Office Tax Deduction

Do you claim the home office tax deduction? I don’t, even though I generate a significant amount of self-employment income out of our home. But lots of other people do.

In fact, according to IRS statistics, nearly 3.4 million taxpayers claimed the home office deduction in 2010. As for me, I’ve avoided it because: (1) it’s a pain in the butt, and (2) I don’t have a dedicated space for business operations.

With respect to #1, Form 8829 spans 43 lines and includes some potentially complicated calculations for fractionally allocating expenses, etc. As for #2, in order to claim the home office deduction, you have to use the space “regularly and exclusively” for business purposes.

Well, with the recent release Rev. Proc. 2013-13, claiming the home office tax deduction got a whole lot easier. Starting in tax year 2013, you’ll have the option of claiming a deduction of $5 per square foot (up to 300 square feet or $1500) for business use of your home.

As I understand it, those who wish to do the long form will still be able to do so. But the availability of this (much) shorter will save an estimated aggregate of 1.6 million hours of tax prep time per year.

However… You still have to meet the requirement for claiming the home office deduction. Most notably, you have to use a portion of your home exclusively and regularly:

• As your principal place of business for any of your trades or businesses,
• As a placed of business used by your patients, clients, or customers to meet or deal with you in the normal course of your trade or business, or
• In connection with your trade or business if it is a separate structure that is not attached to your home.

There are (of course!) a number of other details involved, so you’d be well advised to read the requirements before claiming this deduction. But this sort of streamlining is certainly a welcome development.