INDUSTRY INSIGHT
YOUR TAXES
SPONSORED CONTENT
HOME OFFICE DEDUCTION
M
any taxpayers use their home for business purposes and
do not take the home office deduction because of the
complexity of the depreciation calculation and time required
for recordkeeping. The regular method requires keeping track of your
utilities, allocating your mortgage interest and real estate taxes for
the year as well as calculating depreciation. With the regular method,
depreciation must be calculated and this can create a recapture of the
depreciation when your home is sold, which may result in some of the
otherwise exempt gain on the sale of your home to be taxable.
Beginning with the tax year 2013 the IRS now allows taxpayers to
use the simplified home office deduction for the business use of their
homes. The taxpayers must still meet the criteria to use the home
office deduction, but the new method simplifies the process and
there is no depreciation calculation required; therefore no recapture
of depreciation for the years the simplified method is used when your
home is sold. In any years you used the regular home office method,
depreciation recapture must still be calculated.
To be eligible to deduct either method for home office, the area
of the residence must be used exclusively and on a regular basis for
business purposes. The home office needs to be your principal place
of business or a place where you generally meet clients or customers
in the normal course of business. If you are an employee, you must
meet the additional test that the use of the home office is for the
convenience of your employer.
The simplified method is calculated by using the square footage of
the office up to a maximum of 300 feet multiplied by $5 per square
foot. No depreciation is calculated and all of your mortgage interest
and real estate taxes are deducted on your schedule A instead of
a portion being allocated to your home office. The home office
deduction cannot exceed your net income relating to that business
for the year. The regular method would allow any excess home office
expenses to be carried forward to future years, whereas the simplified
method does not allow such a carryforward.
You may choose to use either the simplified method or the regular
method for any taxable year and it is chosen with your timely filed
federal income tax return for that year. Once you choose a method
in a year you cannot later change it for that year. You can figure
your deduction each way and see what the difference is. Once you
see what the difference is to you then you may see if the regular
method is worth the extra time and effort, or you may choose to take
advantage of the new simplified method.
We think the new simplified home office deduction is a real benefit
and time saver for some of our clients, and many have chosen to use
it for their tax returns.
If you have any questions regarding the home office deduction for
the year please contact our office.
This Industry Insight was written by Paul R. Hartley.
Paul R. Hartley is a partner in Reddinger, Will, Gallagher &
Dickert, LLC. He has over 15 years of experience assisting
clients with individual and corporate taxes. Please give him
a call if you have any questions. 412.571.2900 ext. 112.
Mt. Lebanon | Spring 2016 | icmags.com 39