Home Office Safe Harbor Deduction

The safe harbor home office deduction is a simplified method to claim the home office deduction. For 2013 and later tax years, you can claim the home office deduction under one of these:

  • Regular method
  • New safe harbor method

Qualifying home office

To take the home office deduction under either method, you must:

  • Use the business area of your home regularly and exclusively for a trade or business
  • Make the business part of your home at least one of these:
    • Your principal place of business
    • A place to meet with clients in the normal course of business
    • A separate structure (not attached to the home)

There are two exceptions to the exclusivity requirement:

  • You regularly use part of your home as storage for inventory or product samples.
  • You operate a daycare facility.

If either of these applies to you, you can take the home office deduction. You don’t have to use the area exclusively.

Calculation

Under the safe harbor method, the deduction is figured by multiplying these:

  • Allowable square footage
  • Prescribed rate

Currently, the prescribed rate is $5. Note that the deduction is limited to $1,500. So, the square footage used in the calculation can’t be more than 300 ft2.

Benefits and limitations

The safe harbor method has benefits that the regular method doesn’t, like:

  • It’s easier to compute than the regular method.
  • You don’t have to calculate and substantiate your actual expenses.
  • The deduction is the same regardless of what you actually spend on home office expenses.
  • You can decide each year what method you want to use.

However, the safe harbor method also has some limitations that the regular method doesn’t:

  • Your deduction is limited to $1,500 per year.
  • You can’t claim any depreciation for your home.
  • You can’t claim additional home office expenses like utilities and maintenance.
  • You can only claim mortgage interest and real estate taxes as itemized deductions on Schedule A.
  • You can’t carry over any disallowed portion of the deduction to future tax years.
  • The election is irrevocable for the tax year.

You should choose whichever method results in more tax savings for you.

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