Is A Simplified Home Office Deduction Better?

Today the IRS announced a simplified option for claiming the home office deduction (Form 8829). The deduction will allow some to take $5 per square foot of home office (up to a maximum of 300 square feet). This new “simplified” procedure will be available for 2013 tax returns filed in 2014. Do note that the home office still must be a qualifying home office to take the deduction. There is no depreciation under this simplified procedure, but mortgage interest, property tax, and casualty losses are assumed to be taken.

Well, is this a good deal for home office users? Frankly, not for many of them. I looked at all of my clients who filed this form, and the simplified procedure would have cost every one of them money. Perhaps that’s because of my client base, but I don’t think so. Most taxpayers taking the home office deduction do keep good records, so the recordkeeping isn’t that big of a deal. After all, these are small business owners who have to keep good records anyway (or are supposed to). The reality is that $5 per square foot understates the cost of most home offices, especially when factoring in depreciation.

There are two groups for whom this new procedure is beneficial. First, those business owners who do not keep good records and just haven’t bothered with the deduction in the past. (This especially holds true for renters.) Second, the IRS (and the US Treasury). The simplified procedure will cost taxpayers money, so the government definitely benefits.

There’s another issue with the simplified procedure: state conformity. I actually expect most states to conform as it is beneficial to them (the deductions will be less under this method).

What the IRS handed taxpayers might appear to be a savings of 1.6 million hours per year (per the IRS email I received today). The reality is that taxpayers and tax professionals would be well advised to spend the 1.6 million hours because the simplified procedure looks like a lemon to me.


One Response to “Is A Simplified Home Office Deduction Better?”

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