Maximizing the Office in Home Deduction: Eligibility, Actual vs. Simplified Method, Recapture, Recent Cases

Description

With more people working from home, questions abound about the home office deduction. This deduction allows taxpayers to expense usually nondeductible costs, including utilities, homeowners' insurance, pest control, and more. Once thought to be an audit trigger, this deduction became mainstream after Commissioner v. Soliman, 506 U.S. 168 (1993).

In 2013, the simplified option for the home office deduction was added, leaving preparers with more to consider. The simplified method allows a $5 deduction per square foot of the home used for business up to a maximum of 300 square feet. Many practitioners opt for this method because it saves substantial tax preparation time. Often though, deducting actual expenses saves the taxpayer substantially more in taxes.

Complications that tax practitioners must address include recapturing depreciation when the home is sold if actual expenses have been deducted, operating more than one business from home, and determining exactly which residential expenses are allowed deductions. Understanding how to maximize this deduction is key for tax advisers working with small businesses.

Listen as our panel of income tax experts explains who is eligible for this tax saving deduction, how the deduction is calculated, what is and is not a qualified expense, and unique considerations surrounding this worthwhile deduction.