YouTube video text script - Home Office Deduction for Schedule F, Employee, Partnership Filers (Simplified Method)
Hello, my name is Helen, and I work for the IRS.
Today I will show you how to claim a deduction for business use of the home using the simplified method.
The simplified method is less burdensome;, it requires less paperwork and recordkeeping than the regular method. It is available for homeowners and renters and applies to all types of homes.
You can elect, from year to year, whichever method - simplified or regular - allows you the best deduction. Some taxpayers may find the regular method is the most beneficial.
This deduction is for federal income tax purposes and may not qualify as a deduction on your state or local income tax return. Please consult your tax professional for further information.
The simplified method does not change the criteria for who may claim a home office deduction. See Publication 587, Business Use of the Home, to review the qualifications to make sure you are eligible.
Some of the highlights of the simplified method are:
A standard deduction of $5 per square foot for your home office with a maximum 300 square feet. That means a potential deduction of up to $1,500.
You can claim all your allowable home-related itemized deductions such as mortgage interest and real estate taxes in full on Schedule A, and there is no home depreciation deduction or later recapture of depreciation for the years the simplified method is used. To figure your deduction using the simplified method, you need to know the following for each qualified business use of the home.
The square footage of your office or workspace used in conducting the business. This is the allowable area. If you did not conduct your business for the entire year in the home or the area changed during the year, you will need to know the allowable area used and the number of days you conducted the business each month, the income from the business use of your home, and the amount of your business expenses that are not related to the use of your home.
To figure the dollar amount you can deduct, you must use the Simplified Method Worksheet in Publication 587, Business Use of Your Home.
Ok, let’s walk through the Simplified Method Worksheet found in Publication 587.
Line 1. Enter the amount of the gross income limitation.
Line 2. Allowable square footage for the qualified business use. Do not enter more than 300 square feet.
If you used the same area for the entire year, enter the smaller of the square footage you actually used or 300. For example, if the area is 150 square feet, enter 150.
If you and your spouse conducted the business as a qualified joint venture, you and your spouse will figure the deduction for the business use separately. You can use Part I of the Area Adjustment Worksheet in Publication 587 to assist with this calculation.
If you shared space with someone else who also used the home in a business that qualifies for this deduction, each of you will figure your own deduction. You can use Part I of the Area Adjustment Worksheet in Publication 587 to assist with this calculation.
If you used the home for business for only part of the year or the area you used changed during the year, your deduction is limited to the average monthly allowable square footage. You can calculate this amount by adding the allowable square footage you used in each month and dividing the sum by 12.
You can use Part 2 of the Area Adjustment Worksheet in Publication 587 to assist with this calculation. Do not take more than 300 square feet into account for any one month. If your qualified business use was less than 15 days in a month, you must use -0- for that month.
For example, beginning on July 20, you used 420 square feet for a qualified business through the end of the year. Because your qualified business use was less than 15 days for July, you can only count August through December, or 5 months, for this calculation. Now you take 5 months and multiply it by the maximum 300 square feet, which equals 1500 total square feet. Then you divide the 1500 by 12 months, to arrive at the average monthly allowable square footage of 125 square feet.
Next is Line 3, the simplified method amount.
On Line 3a, you would enter the maximum allowable amount of $5.
Line 3b. Enter 1.0.
3c. Multiply Line 3a by Line 3b and enter the result to 2 decimal places.
Line 4. Multiply Line 2 by Line 3c.
Line 5. Allowable expenses using the simplified method. Enter the smaller of Line 1 or Line 4 here and include that amount on Schedule C, Line 30. If zero or less, enter -0-.
Where you deduct the Line 5 amount depends on if you use your home in your farming business and file Schedule F, or if you are an employee, or if you are a partner.
If you operate a farm and file Schedule F, report your deduction on Schedule F, Other Expenses.
If you are an employee, you must itemize deductions on Schedule A (Form 1040) to claim a deduction for the business use of your home. Report this deduction under Unreimbursed Employee Business Expenses.
If you are a partner, you may be allowed to deduct unreimbursed ordinary and necessary expenses you paid on behalf of the partnership, if you were required to pay these expenses under the partnership agreement. For information about deducting unreimbursed partnership expenses, see Schedule E, Supplemental Income and Loss, Schedule SE, Self-Employment Tax, or Form 1065, Schedule K-1, which is Partner’s Share of Income, Deductions, Credits, etc.
That’s all there is to it. If you need additional information, you can find many helpful resources on IRS.gov by visiting the Small Business and Self Employed Tax Center. The web address is www.irs.gov/smallbiz with a “z.”
Thank you for watching.