Reduce your home office deductions burden.In an attempt to reduce the administrative, recordkeeping and compliance burdens of small business owners, the IRS provides an optional safe harbor method, called the simplified home office deduction, to compute the allowable deduction for the business-use portion of your home.
The simplified method does not make it easier to qualify for a home office deduction; it only simplifies the calculation of the deduction. It’s also important to know that the safe harbor method is not in addition to the calculation and allocation of actual home office expenses, but rather serves as an alternative.
If you decide to use this method, you must continue to satisfy all of the usual requirements for claiming a home office deduction.
To use the simplified deduction, multiply the allowable square footage of the home office by the prescribed rate of $5. The allowable square footage for business use cannot exceed 300 square feet. Thus, the maximum allowable home office deduction under the safe harbor method is $1,500 (300 square feet x $5).
If you use this method, you can still deduct any business expenses unrelated to the qualified business use of the home, such as advertising, wages and supplies. In addition, you can deduct 100% of the mortgage interest and real estate taxes on Schedule A, Itemized Deductions. However, if there is rental use, you must allocate those expenses between Schedule E, Supplemental Income and Loss, and Schedule A.
You are allowed to switch from the simplified method to actual expenses from year to year. This is not a change in method of accounting and does not require IRS consent.