Every once in a while, the IRS surprises us and makes our lives easier. This is definitely the case when the IRS introduced the Simplified Home Office Deduction back in 2013.
This simplified deduction is still based on the square footage of your home office. All you need to do now, however, is multiply the square footage of your home office by $5 per square foot, and that’s the deduction you’ll claim for the home office that year.
If you are a homeowner, you will then claim 100% of your mortgage interest and real estate taxes as an itemized deduction.? And by claiming the simplified home office, you no longer need to maintain depreciation schedules while you own the home, nor would you then pay taxes on depreciation claimed over the years when you sell the home.
Remember, the non-simplified method to calculate the home office deduction is to figure the percentage of the square footage of your home that is utilized regularly and exclusively as the home office.? Let’s say your home is 2,000 square feet and your office within the home is 200 square feet.? In this example, you’d deduct 10% of the following costs:
- Mortgage interest and real estate taxes if you own the home
- Rent paid if you are a tenant
- Homeowners or renters insurance
- Utilities (excluding phone and internet) – electric, gas, oil, and water
- Repairs and Maintenance
- Depreciation Expense if you are a homeowner, based on the percentage of the cost of the home plus improvements
Frankly, if you are a renter, definitely do the math as you you will probably be better off claiming the home office deduction based on the non-simplified calculations than claiming $5 per square foot.
Homeowners should still work through the math, but given the fact that you will deduct 100% of your mortgage interest and real estate taxes as an itemized deduction, and won’t have to deal with paying taxes on the deprecation expense claimed over the years when you sell the home, the simplified home office might be the way to go.
Please take a look at the Form 8829 or the Instructions to the Form 8829 for more info about the Home Office and Simplified Home Office Deductions.