Simplified Option for Home Office Deduction

Do you work from home? If so, you may be familiar with the home office deduction, available for taxpayers who use their home for business. Beginning this year, there is a new, simpler option to figure the business use of your home.

This simplified option does not change the rules for who may claim a home office deduction. It merely simplifies the calculation and recordkeeping requirements. The new option can save you a lot of time and will require less paperwork and recordkeeping.

Here are six facts the IRS wants you to know about the new, simplified method to claim the home office deduction.

1. You may use the simplified method when you file your 2013 tax return next year. If you use this method to claim the home office deduction, you will not need to calculate your deduction based on actual expenses. You may instead multiply the square footage of your home office by a prescribed rate.

2. The rate is $5 per square foot of the part of your home used for business. The maximum footage allowed is 300 square feet. This means the most you can deduct using the new method is $1,500 per year.

3. You may choose either the simplified method or the actual expense method for any tax year. Once you use a method for a specific tax year, you cannot later change to the other method for that same year.

4. If you use the simplified method and you own your home, you cannot depreciate your home office. You can still deduct other qualified home expenses, such as mortgage interest and real estate taxes. You will not need to allocate these expenses between personal and business use. This allocation is required if you use the actual expense method. You’ll claim these deductions on Schedule A, Itemized Deductions.

5. You can still fully deduct business expenses that are unrelated to the home if you use the simplified method. These may include costs such as advertising, supplies and wages paid to employees.

6. If you use more than one home with a qualified home office in the same year, you can use the simplified method for only one in that year. However, you may use the simplified method for one and actual expenses for any others in that year.


3.8% Sales Tax on Home Sales – More on ObamaCare

Starting in 2013, the health care bill does impose a 3.8% Medicare tax on high-income taxpayers who exceed a total household net-investment income — a total which could conceivably include some of the proceeds from a home sale. However, while this Medicare tax will be applied to households with an adjusted gross income of $200,000 or more for individuals, or $250,000 or more for married couples, it typically won’t include capital gains resulting from the sale of a home, providing that home is a primary residence and not a vacation or rental home.

Why? Because the capital gains tax exclusion rule for sales of a primary home — $250,000 for individuals and $500,000 for couples — will remain. In other words, if the profit realized from the sale of the home falls below those capital gains exclusion totals, then it can’t be tacked on to that household’s net-investment income tally. Hence, that 3.8% Medicare tax would not apply.

If the gains from the sale of the house do exceed the $250,000 or $500,000 thresholds, they will be added to the household’s net-income total, which is subject to that 3.8% Medicare tax. All told, however, that tax will fall on a relative few — typically, households with large incomes from other sources. Any revenue collected through the Medicare tax, by the way, goes to the Medicare hospital insurance program.

If you do happen to be in that high-income bracket and own one of those scant few homes in which your sale profits are likely to greatly exceed the capital gains limits, you won’t have to worry about that Medicare tax anyway unless you wait until next year or later to sell. Even if you should decide to sell in 2013 or after, the issue may be moot by then if the Supreme Court shoots down parts or all of the legislation this year.

Most likely though, that Medicare tax will not affect you in any way. Good luck on your sale!

Source: FoxBusiness

Read more about the 3.8% Medicare Investment Surtax – HERE