The IRS has implemented a new simplified alternative method for calculating whether a taxpayer is entitled to a home office deduction, and if so, the amount of the deduction. The taxpayer has the option of choosing the standard, or new simplified method each year.
Under new rules, whether a taxpayer qualifies for the home office deduction depends primarily on two factors: (1) regular and exclusive use; and (2) principal place of business. The home need not be the only place of business, but its use must be “substantial and regular.” Also, the taxpayer does not have to be a business owner– the deduction can be used by an employee so long as he or she works from home for the “convenience of the employer” and rent is not being received from the employer for use of the space.
The new simplified method of determining a home office deduction differs from the standard rules on home office deductions primarily in three ways: (1) instead of determining the actual percentage of your home used for business, you are allowed a standard deduction of $5/square foot, with a 300 square foot maximum; (2) home-related deductions that are allowed may be claimed in full; and (3) there is no home depreciation deduction, nor can depreciation be captured for the years the simplified method is used.