Simplified Option for Home Office Deduction
The home office deduction is available for self-employed taxpayers who use their home for business.
There are two methods for calculating the deduction for the business use of the home. The Simplified Method requires only knowing the square footage of the area used for business, while the longer method requires the taxpayer to calculate and allocate actual expenses.
The Simplified Option doesn't change the rules for who may claim a home office deduction. It merely simplifies the calculation and record-keeping requirements.
Important points to bear in mind
- If the Simplified Method is used to claim the deduction, the calculation is not based on actual expenses but by multiplying the square footage of the area used for business by the prescribed rate.
- The rate is $5 per square foot of the part of the home used for business. The maximum footage allowed is 300 square feet. This means the most that can be deducted using the Simplified Method is $1500 per year.
- The taxpayer may choose either the Simplified Method or the actual expense method for any tax year. Once a method is used for a specific tax year, it cannot be later changed to the other method for that same year.
- The home office cannot be depreciated if the Simplified Method is used, nor can the section 179 deduction be taken. (Depreciation and the section 179 deduction can still be taken on assets used in the business, and certain other qualified home expenses such as mortgage interest and real estate taxes can still be deducted on Schedule A as itemized deductions.)
- If the taxpayer uses more than one home with a qualified home office in the same year, the simplified method can be used for only one home in that year. However, they may use the simplified method for one and actual expenses for any others in that year.
- If a home is used by more than one business, they may both use the simplified method but not for the same portion of the home.
- The deduction for business use of the home can reduce the net profit of the business to $0 but not below $0, and if the Simplified Method is used the unused portion of the deduction, if any, cannot be carried forward to the following year.
Selecting to use the Simplified Method
To select the Simplified Method in TaxSlayer ProWeb, from Federal Section of the tax return (Form 1040) select:
- Income
- Schedule C - Select to edit or create the Schedule C as needed.
- Expenses for Business Use of Your Home
- Simplified Method for Business Use of Your Home
Note: The Simplified Method is only available when first selecting Business Use of Your Home. If the Simplified Method option is not available, delete the Business Use of Your Home worksheet and add it back.
Additional Information:
IRS: Schedule C instructions for the simplified method