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Using Home Office Space as a Tax Deduction

Posted on December 6, 2013 by
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home office tax deductionWith home-based businesses cropping up all across the country, people will be taking certain tax deductions for their new self-employment venture to reduce the amount of taxes they must pay to the federal government. The home office space deduction allows the self-employed to claim a certain part of their home as a dedicated office area, as the expenses to operate this space can be deducted from their taxes.

In the past, you could use the regular method to deduct your home office space expenses. This method was very complex, so the IRS created a simplified method for office deductions that will begin in 2014 for the 2013 tax year. While the criteria for home office space deductions has not changed, you will no longer have to keep receipts and records of your expenses such as rent, utilities and real estate taxes.

How To Use The Simplified Method

If you choose to use the simplified method on your taxes this year, all you have to do is determine the amount of square footage in your home that is dedicated to your business. Once you have the square footage, you deduct $5 from your taxes for every square foot of the home office space. So you will multiply your total square footage by $5 and deduct that amount on your taxes.

You can only deduct up to $1,500 from your taxes every year, so this limits your office space to 300 square feet. You can place the deduction on your federal tax form instead of filing Form 8829. If you are using the regular method, you will still need to use Form 8829.

You can still claim real estate taxes, allowable mortgage interests and casualty losses using the simplified method. These will be itemized deductions placed on Schedule A when you file your taxes.

Limitations To The Simplified Method

You can choose either the simplified method or the regular method for any one taxable year. Yet you cannot switch from one to the other for the same year. Also, you cannot claim a depreciation deduction for your home or get a recapture of depreciation when you sale your home, according to the IRS.

Other limitations include the fact that you can only use the simplified method for one home. You cannot use this deduction if claiming home office space in a secondary home. Yet you can use the regular method for the second home you own.

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