Tax Facts

Safe Harbor Home Office Deduction

A taxpayer (either a business owner or an employee) may elect a simplified method to compute the home office deduction for tax years beginning on or after January 1, 2013 without having to substantiate, calculate, and allocate deductible home office expenses. This is referred to as a safe harbor method of taking the home office deduction.

Under the safe harbor, the deduction is equal to $5.00 times the number of square feet of the home office. It is limited to a maximum of 300 square feet. So even if your home office is 500 square feet, the maximum deduction you can take is $1,500. Additionally, the deduction cannot exceed the taxpayer's gross income from the business (and this has to be calculated as a percentage if you are conducting your business elsewhere for parts of the day, week or year).

This may be advantageous to many taxpayers. However, keep in mind that if the safe harbor deduction exceeds the income limit, the excess cannot be carried forward to the next year. So if your business has just started up and you are still in the net loss arena - you can't carry forward the deduction and therefore there is no need to go through all the calculations for the safe harbor method. (You can carry forward a deduction if you use the actual expenses method for taking the deduction).

If your home office expenses are reimbursed by an employer you cannot use the safe harbor method.

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