Claiming a Home Office: New Simplified Home Office Tax Deduction for 2013

Woman deducting home office expenses

New Home Office Deduction Legislation

According to the U.S. Small Business Administration (SBA), 52 percent of all small businesses (14.4 million) currently operate from the business owner’s home in one fashion or another. As I have written in a previous post on this subject, the current rules of the Internal Revenue Service (IRS) allowing a home office business deduction are complicated, to say the least. Congress recognizes this fact and has considered new legislation that would establish an optional home office business deduction as recently as June 2009. Unfortunately, that legislation, the Home Office Tax Deduction Simplification and Improvement Act of 2009 (S.1349 of the 111th Congress), failed to make it to the floor for a vote.

Claiming a Home Office Tax Deduction

To review, Section 280A(c)(1) of the Internal Revenue Code (Code) permits a deduction for a home office if it is the principal place of business of the taxpayer, used exclusively for business, or used to meet with patients, clients or customers. Final regulations do not provide a concise definition of the elements of Code Section 280A(c)(1). In the absence of final regulations describing how to both qualify for and calculate the deduction, complicated IRS requirements evolved, scaring off many at-home workers from taking advantage of this deduction. In arguing for the new alternative, the SBA noted the requirements to calculate and qualify the deduction under existing IRS rules simply do not account for changes in technology that impact the way that a significant part of small business is conducted in the 21st century.

New Simplified Home Office Tax Deduction Option

Effective for 2013, the IRS has implemented a simplified option for small businesses to calculate the home office deduction in Revenue Procedure 2013-13 ( The new option, while limited in value, is easy to implement and claim, as it allows a deduction of up to $1,500 based on a formula of $5 per square foot of home office space used in business operations. In creating something akin to the standard deduction for income tax purposes, the new alternative allows the home-based business owner to simply multiply the square footage used for business operations by the applicable IRS rate. The advantage to the simplified method is avoiding the hard work of calculating, allocating and substantiating actual expenses associated with using a portion of your home for business operations that is required under Code Section 280A. Additionally, the new procedure permits a taxpayer to elect from year-to-year whether to use the safe harbor method or to calculate and substantiate actual expenses for purposes of Code Section 280A.

However, for some, the utility of the new procedure is limited. Many home-based businesses can qualify for a much larger deduction by satisfying the IRS rules for claiming the deduction under Code Section 280A. For these businesses, the time and effort required to meet the complicated rules may well be worth it. Contact our office for more information.