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By Karen A. Connelly
Internal Revenue Service
If you use part of your home for your business, you may qualify to deduct expenses for the business use of your home.
This is commonly referred to as the home office deduction.
In the past, claiming the home office deduction required filling out a 43-line form (Form 8829) that usually required complex calculations of allocated expenses, depreciation and carryovers of unused deductions.
In January, the IRS announced a simplified option that provides eligible taxpayers an easier path to claiming the home office deduction and reduces the paperwork and recordkeeping on small businesses.
The new optional deduction for business use of a home is capped at $1,500 per year based on $5 a square foot for up to 300 square feet.
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.
The requirements 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.
The new simplified option is available starting with the 2013 tax return most taxpayers file early in 2014.
Generally, in order to claim a deduction for a home office, you must use a part of your home exclusively and regularly for business purposes.
The part of your home that you use for business purposes must also be:
• your principal place of business, or
• a place where you meet with patients, clients or customers in the normal course of your business, or
• a separate structure not attached to your home.
Examples might include a studio, workshop, garage or barn.