Do you use any portion of your home for business purposes? If your answer is yes, you may be familiar with the home office deduction on your tax return. To qualify for the home office deduction, the area in your home used by business must be used regularly and exclusively: the home office is the principal place of business and is the place to meet with clients. The area used for business is used on a continuing basis. Occasional or incidental business use does not meet the regular use test, even if the area is used for no other purpose. The area in your home is used for business purposes only. Any personal use of the space means the exclusive use test is failed. Some expenses that qualify as home office expenses are: mortgage interest, real estate taxes, rent, utilities, house insurance, security system, house cleaning/maintenance, garbage removal and snow plowing, etc. Please note that lawn care/landscaping expenses are not deductible according to IRS Publication 587.

You can choose either the simplified option or the regular method for any taxable year to claim the home office deduction. Once a method is chosen for a taxable year, you cannot later change to the other method for that same year. If you use the simplified method for one year and use the regular method for any subsequent year, you must calculate the depreciation deduction for the subsequent year using the appropriate optional depreciation table.

Beginning in tax year 2013 (returns filed in 2014), you may use a simplified option when figuring the deduction for business use of your home. Here are some highlights of the simplified option for deducting expenses for business use of a home: Standard deduction of $5 per square foot of home used for business (maximum 300 square feet), allowable home‐related itemized deductions claimed in full on Schedule A (mortgage interest, real estate taxes) and no home depreciation deduction or later recapture of depreciation for the years the simplified option is used.

The following table can help you decide which method you want to use to claim home office deduction:

 

Simplified Option

Regular Method

Allowable square footage of home use for business (not to exceed 300 square feet)

Percentage of home used for business

Standard $5 per square foot used to claim deduction

Actual expenses (maintain records)

Home‐related itemized deductions claimed in full on Schedule A

Home‐related itemized deductions apportioned between Schedule A and business schedule (Schedule C. or E)

No depreciation deduction

Depreciation deduction for portion of home used for business

Amount in excess of gross income limitation may not be carried over

Amount in excess of gross income limitation may be carried over

Loss carryover from use of regular method in prior year may not be claimed

Loss carryover from use of regular method in prior year may be claimed if gross income test is met in current year

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