Make us your home page
Instagram

The Nation's Housing: No place like home, IRS finds

The Nation's Housing: No place like home, IRS finds

IRS offers option for home businesses

WASHINGTON — If you're one of the millions of home-owners and renters who work or run a business from the place you live, here's some good news on taxes: The Internal Revenue Service wants to make it easier for you to file for deductions on the business-related use of your home.

Rather than the complicated 43-line form you now have to fill out to claim a write-off — the instructions alone take up four pages of text and involve computations ranging from depreciation to utility bill expense allocations — the IRS has come up with a much simpler option: What it calls a "safe harbor" method that allows you to measure the square footage of your business space and apply for a deduction.

The move comes at a time when the use of homes for work is soaring, thanks to technologies such as high-speed Internet and Skype. Last October the Census Bureau estimated that as of 2010, the last year when data were available, 13.4 million Americans were making some type of business use of their homes, and that home businesses employed nearly 10 percent of all workers. During the same year, the IRS says 3.4 million taxpayers filed for the home office deduction. The sheer size of the gap raises the question: Are millions of people declining to seek write-offs for which they're qualified?

Kristie Arslan, president and CEO of the National Association for the Self-Employed, thinks so. The IRS rules for home offices have been "cumbersome and time consuming," she said, "… and year after year hard-earned dollars were left on the table." Otherwise qualified business owners and entrepreneurs were daunted by the record-keeping and paperwork required. They also worried that they could be exposed to an audit by the IRS if they made mistakes in filing.

The new IRS option plan, which will be available for 2013 and beyond, allows owners and employees who work from home to deduct $5 per square foot of home office space per year, up to a maximum allowable space of 300 square feet. The write-off is capped at $1,500 per year, but the hassle factor is negligible.

Here's how it works. The Internal Revenue Code permits you to deduct expenses for a home office that is used "exclusively" and on a "regular basis" as your principal place of business "for any trade or business," or as a place to meet with clients or customers. Provided you qualify on these threshold tests, the code allows you to deduct mortgage interest, property taxes, rent, utilities, hazard insurance and other expenses based on the percentage of the total space of the home that is attributable to your business use.

Though this method can produce sizable deductions, critics have long argued that the computations for some of the allowable items — depreciation on the house you own is one — can be tricky and require significant record-keeping and time expenditures to get it exactly right. Plus the IRS has acknowledged that the presence of a home office deduction on a taxpayer's filing may increase that taxpayer's potential for being selected for audit.

The new streamlined approach essentially boils everything down to just one measurement: How much square footage that qualifies for business purpose treatment are you using? Multiply that number by $5 per square foot and you've got your deduction amount. As long as this does not exceed $1,500, you can use the new short form write-off. If the total is more than $1,500, you can use the more complicated option, which is spelled out in IRS Form 8829 and available at IRS.gov.

The Nation's Housing: No place like home, IRS finds

The Nation's Housing: No place like home, IRS finds 01/26/13 [Last modified: Thursday, January 24, 2013 4:06pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Washington Post - Writers Group.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Tallest building in Pinellas County in search of a new name

    Real Estate

    ST. PETERSBURG — The name "Priatek" is gone from Pinellas County's tallest building, perhaps to be replaced by that of a much better-known company new to the Tampa Bay area.

    The Priatek name is off of downtown St. Petersburg's tallest building.
 [LARA CERRI  |   Times.  2015]
  2. Estuary wins pier design contest for the Lee Roy Selmon Expressway extension

    Real Estate

    TAMPA — And the winner is… Estuary.

    Voters overwhelmingly supported a pier design called Estuary for the $200-million extension of the Lee Roy Selmon Expressway in Tampa.
[Courtesy of AECOM]
  3. Amazon receives 238 proposals from places eager to become its 2nd headquarters

    Business

    NEW YORK — Amazon said Monday that it received 238 proposals from cities and regions in the United States, Canada and Mexico hoping to be the home of the company's second headquarters.

    Earlier this month, an Amazon employee gives her dog a biscuit as the pair head into a company building, where dogs are welcome, in Seattle. Amazon says it received 238 proposals from cities and regions hoping to be the home of the company's second headquarters. 
[AP Photo/Elaine Thompson]
  4. Target says customers want it to pause the Christmas creep

    Retail

    NEW YORK — Target says customers want it to pause the "Christmas creep." It says it wants to be more in tune with customers' mindset, so it plans to ease in holiday promotions this year while better recognizing Thanksgiving.

     Target says customers want it to pause the "Christmas creep." It says it wants to be more in tune with customers' mindset, so it plans to ease in holiday promotions this year while better recognizing Thanksgiving. This is Target's new store in Manhattan's Herald Square that opened last week. 
[Kavita Kumar/Minneapolis Star Tribune/TNS]
  5. Tampa's Walter Investment Management restructuring, could file for bankruptcy

    Corporate

    TAMPA — Tampa-based Walter Investment Management Corp. is restructuring to cut down some of the mortgage firm's $700 million debt, Walter announced Friday night. The firm, according to its investor relations page, focuses on subprime and "other credit-challenged" mortgages.

    Walter Investment Management is restructuring to reduce its $700 million debt, the company announced late Friday. Pictured is Anthony Renzi. CEO. | [Courtesy of LinkedIn]