Is there a new way to calculate my home office deduction?
Yes, but first it's important to understand what hasn't changed. To qualify for an income tax deduction for home office expenses, the IRS still requires that you meet two tests--the place of business test and the exclusive and regular use test.
To pass the place of business test, you must show that you use a portion of your home as the principal place of business for your trade or business, or
a place where you regularly meet with clients, customers, or patients. In the case of a separate structure that isn't attached to your dwelling unit, you must show that you use it in connection with your trade or business (i.e., it needn't be your principal place of business).
The exclusive and regular use test requires that you use that portion of your home both exclusively for business and on a regular basis.
Prior to 2013, in order to claim the home office deduction, you also needed to determine the actual expenses you incurred in maintaining your home office (for example, mortgage interest, insurance, utilities, repairs, and depreciation).
However, beginning with the 2013 tax year, you're able to use an optional "safe harbor" method of calculating your home office deduction. Instead of determining and allocating actual expenses, under the safe harbor method you calculate your deduction by multiplying the square footage of your home office (up to a maximum of 300 square feet) by $5. Since square footage is capped at 300, the maximum deduction available under the safe harbor method is $1,500.
Each year, you can choose whether to use the safe harbor method of calculating the deduction or to use actual expenses. If you use the new safe harbor method:
- You'll still be able to deduct mortgage interest and real estate taxes on Schedule A if you itemize deductions.
- You cannot depreciate the part of your home you use for business. (If you use the safe harbor method in one year, and in a later year use actual expenses, special rules will apply in calculating depreciation.)