What Is The New Home Office Deduction?

The new deduction for people that work from home could save taxpayers money and time when it is time to file tax returns. There are millions of people that work from home every day in the United States. The Internal Revenue Service has created a new option for these people so that they are able to deduct some of the expenses on their federal income tax returns.

The home office deduction is currently in effect for the 2013 tax year. Workers based out of their home will be able to claim a tax deduction of $5 sq. ft for 300 sq. ft of workspace or less. The total deduction will be up to $1,500 depending on the amount of office space they are using. The space must meet requirements set by the IRS. The space must be used exclusively and regularly for the purpose of business.

 Save Time On Record-keeping And Paperwork

The internal revenue service is estimating that this new option for home office expenses will save more than 1.6 million hours for small businesses in paperwork and record-keeping. However, taxpayers will still have the old option to use Form 8829 in order to calculate the deduction if they choose to.

 Is The New Home Office Deduction The Best Option?

The new home office tax deduction is not going to be the best option for all small businesses. It will be the best option for taxpayers who have less than $1,500 each year in home office expenses and if the home office is smaller than 300 sq. ft. The best thing to do is to calculate whether your expenses will be more than $1,500 or if you will have a lot of depreciation. If your expenses are much higher than $1,500, then using Form 8829 will be the best option for you. Your tax advisor can also assist you with determining the option that is best based on your individual situation.

This option may be easier for more workers that are based out of their home to be able to get a deduction. In the past, the home office deduction was a red flag for IRS audits. Many people were afraid to take the deduction because they were afraid that they would not have the proper records to back up the deduction. The new home office deduction is a safe harbor method taxpayers can choose to use.

If you work from home, now you can take the new home office deduction when you file your federal tax return this year. The first thing you need to do is determine if your meet all of the IRS requirements for a home office. Next, determine if the new deduction will be the best option for you. Consider speaking with a tax advisor to help you decide what makes the most financial sense for you. Remember, you do not have to use the new home office diction option. You can still use Form 8829 if it will provide a higher deduction for you.

Home Office Deduction | Video

In this short video, Sanjiv Gupta CPA discusses the “Home Office Deduction”.

What is considered as Home Office ?

Please consider the IRS definition for Home Office.

Whether you are self-employed or an employee, if you use a portion of your home for business, you may be able to take a home office deduction.  Here are six things the IRS wants you to know about the Home Office deduction

1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:

  • as your principal place of business, or
  • as a place to meet or deal with patients, clients or customers in the normal course of your business, or
  • in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.

2. For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.

3. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home to figure your home office deduction and report those deductions on line 30 of Form 1040 Schedule C, Profit or Loss From Business.

6. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.


A To Z Of Home Office Tax Deductions

If you have a home based business you can save money by availing home office tax deductions. The IRS allows you to save money on insurance, mortgage, repairs and other utilities, if you have an office at home. Home office deductions are applicable for all kind of homes irrespective of apartments, flats and even mobile homes. So if you are wondering how to claim a home deduction this article will provide you with all the basic information.

Requirements for home deductions

The internal revenue service or the IRS has created certain specific requirements that must be met with to claim home office deductions. They are as follows:

  1. Regular use: For you to claim home office tax deductions you have to work from your home on a period of over two years.
  2. Exclusive use: You can also be eligible for home office deductions if you use your home exclusively for work. You can either have a separate area for work or a room within your house but it must only be used for work-purpose.
  3. Principal place for your work: Your home must serve as a principal area for your work. You cannot claim for tax deductions if you use your house occasionally for the purpose of your business. But even if you have another office at some other location but use your house regularly for client meeting and other administrative and executive purposes you can easily be eligible for home office tax deductions.
  4. What percentage of the house is being used: Another requirement that will decide the deductible amount is what percentage of the house is being used for work. So before you file your house deduction claim you need to understand what percentage of the house is used for work if you are using more than one room or only a portion of a room as your home office.

Rules for employees

The IRS has specified a couple of other rules for employees claiming home office deductions. So if you are an employee in addition to the above stated rules you would also have to comply with these other criterion.

  • For an employee looking for home deductions he must show that his working from home is actually more beneficial for the employer. You can easily claim home office deductions if your office does not provide any space for you to work in their location and you have to work from home. However the IRS does not have any specific rules to judge if your work is actually beneficial for your employer. They base their decision on facts and circumstantial information.
  • You cannot be eligible for tax deductions if you rent a part of your home to the employer and use that part to work for that same company.

What can you save

Filing for a home office tax deductions can reduce your tax bills considerably. If you meet all the required compliance criterion you can easily save a lot by home tax deductions. The IRS will deduct mortgage insurance, rent, repair, real estate taxes, depreciation and any other type of utilities.

However your deductible amount will depend on the percentage of the house you are using for your work.

Also if your income is lesser than the expenditure incurred for your business your deductions will be constrained.

How to file your claim

If you are thinking of claiming your home office deductions and you are meeting all the compliance criterion you can easily reduce a considerable portion of your tax bills. Here is how you can claim your home office deductions.


Self employed: For those who are self employed and using their homes as office they have to fill Form 8829 to understand the amount of deduction they will be eligible for. Then this amount has to be stated in Schedule C.

Employees: Employees have a different procedure of filing home office deductions. If you are an employee you can calculate your deductible amount using the work sheets of IRS publication 587. Once you have calculated your deductions you can then claim them as itemized deductions on Schedule A.

These are the basic information that one needs to know and follow to file a home office tax deduction. Successfully filing your claim can easily reduce a considerable amount of tax burden from your shoulders.