If you’re among the nearly 3.4 million taxpayers who claim a tax deduction because part of your home is used for business purposes, you (or your accountant) are familiar with the 43-line, calculation-heavy form 8829 that the Internal Revenue Service requires you fill out to determine how much of a break you deserve. But now there’s an easier alternative.
On Jan. 15, the IRS announced a new optional way to claim the same deduction: Figure out how many square feet you use for that office (up to 300 square feet) and multiply it by $5. That’s it.
Of course, simplicity has its limits. You cannot depreciate the part of your home used in a trade or business, and the optional deduction tops out at $1,500 per year. However, the IRS notes that you still can use Schedule A of your tax return to claim allowable mortgage interest payments, real estate taxes, and casualty losses. And while using the option, you still can claim business expenses that aren’t related to the home office, such as advertising, supplies, and wages paid to employees.
One more rule also remains: You have to be able to show that the home office was “used regularly and exclusively for business,” and you cannot claim a deduction that exceeds the income you got from the business.
—Craig Webb, editor-in-chief, REMODELING.