There's a Simpler Home Office Deduction in 2013

By Jim Blankenship

NEW YORK (AdviceIQ) -- This year, the Internal Revenue Service allows a new method of deducting expenses for home offices. You can still deduct for home office space using the old method -- and this new "safe harbor" option, which the IRS calls "simplified," has calculation wrinkles that may not be for everyone.

The new method allows you to deduct a flat $5 per square foot of dedicated office space in your home, up to a maximum of 300 square feet. Three reasons this might be for you:

1. If you are just starting to take the home office deduction, you can forget about depreciation recapture, a required adjustment when you sell your home. If you took the old home office deduction, including depreciation of your home office space, you still need to keep records of the depreciation claimed in earlier years and recapture that depreciation when you sell your home. Note that you also need to maintain these records even if you start taking the safe harbor amount, since you're permitted to switch between deduction methods from tax year to tax year.

2. In the past when calculating the home office deduction, you gathered utility bills, mortgage interest, real estate taxes, repair bills and other documents to determine the amount attributable to the home office. This isn't needed under the new rule.

3. Under the old method, any amount for real estate taxes and mortgage interest claimed under the home office deduction gets subtracted from those expenses for use on your Schedule A tax form for itemized deductions. Again, this is no longer required under the safe harbor rule.

Depending on your situation, you might want to stick with the old rules, however. For one, the new provision's 300-square-foot deduction limit may be plenty for some home office workers but there are likely many exceptions. A dedicated waiting area, for example, could easily push your square footage beyond this allowable maximum.