United States: An Easier Way To Calculate The Home Office Deduction

To claim a deduction for home office expenses, taxpayers are required to fill out Form 8829, Expenses for Business Use of Your Home, which consists of 43 lines, and to perform a number of complex calculations of allocated expenses, depreciation, and carryover of unused deductions. Private industry has argued that the rules for the home office deduction are too complex. To simplify the process, the National Taxpayer Advocate recommended that Congress create an optional standard home office deduction based on a simple formula. Along those lines, numerous bills have been introduced that provide a simple formula for calculating the home office deduction.

In Rev. Proc. 2013-13, the IRS announced a new simplified option beginning in 2013 for individuals to use in determining the home office deduction amount. This option does away with the previously required calculation, allocation, and substantiation of actual expenses.


The general rule is that no deduction is allowed for the business use of a dwelling that is also used as a residence during the tax year. However, certain exceptions apply, allowing for the deduction of expenses allocated to the business use of a residence.

Exclusively and regularly

To qualify for the deduction, the home office must be used "exclusively and on a regular basis" as the principal place of business for any trade or business, as a place to meet clients or customers in the normal course of a trade or business, or in the case of a separate structure not attached to the taxpayer's dwelling unit, in connection with a trade or business (Sec. 280A(c)(1)). "Used exclusively" means that the home office must be used only for business, not personal, purposes.

The two exceptions to the exclusive use requirement are: (1) space used to store inventory or product samples for a wholesale or retail trade or business located in the home (if the home is the taxpayer's sole fixed location of doing business) and (2) the part of a home used in a trade or business of operating a day-care facility. The "regular basis" requirement means that the use is continuing, ongoing, and recurring and not occasional or incidental. The use must be for a trade or business, and not simply for profit-seeking activities, such as investing.

Principal place of business requirement

To qualify for the home office deduction, the part of the home that is used for business must be the principal place of business. Where the home office is not the principal place of business, it may still qualify for the deduction (1) if it is where the taxpayer meets with patients, clients, or customers and the home office is substantial and integral to the conduct of the business, or (2) if it is a separate free-standing structure that is exclusively and regularly used for the business.

Deduction limitation

When a taxpayer calculates the home office expense deduction using actual business expenses, the deduction is limited to the gross income derived from the qualified business use of the home reduced by the expenses allocable to the portion of the home used as an office that are deductible whether or not the portion of the home is used as an office (e.g., qualified residence interest and property taxes) and deductible expenses of the business unrelated to the qualified use of the home (for example, office supplies). The disallowed amount of home office expenses (those that exceed the gross income limitation) can be carried over to the next succeeding tax year in which the taxpayer calculates and substantiates actual business expenses and can be deducted, subject to the same applicable limitations.

Substantiation requirement

To be eligible to deduct home office expenses, taxpayers must satisfy rigorous and time-consuming recordkeeping requirements. The IRS estimates that small businesses spend 1.6 million hours annually on the paperwork and recordkeeping necessary to show that the area of a residence used as a home office was used regularly and exclusively as the principal place of business of the taxpayer's trade or business and to calculate and allocate expenses related to the qualified use of the home for business.

Rev. Proc. 2013-13

Safe-harbor formula

To provide taxpayers an easier way to calculate and claim the home office deduction and to reduce the administrative, recordkeeping, and compliance burdens on small businesses, the IRS announced, in Rev. Proc. 2013-13, an alternative, safe-harbor method for taxpayers who otherwise qualify for a home office deduction to determine the amount of the allowable home office expense deduction, starting in 2013.

Under the safe harbor, taxpayers will be able to compute the allowable home office expense deduction on the basis of $5 per square foot of qualifying home office space per year, up to a maximum of 300 square feet. The maximum deduction under the safe harbor is the lesser of $1,500 or the gross income derived from the qualified business use of the home. The taxpayer can elect the safe-harbor method on a year-by-year basis. The $5 per square foot rate may be adjusted by the IRS and the Treasury Department as warranted, but it is not subject to an automatic cost-of-living adjustment.

The safe harbor is not available to an employee with a home office who receives advances, allowances, or reimbursements for expenses related to the home office use under a reimbursement or expense allowance arrangement with the employee's employer.

Home definition

For purposes of the safe harbor, "home" means a dwelling unit used by the taxpayer during the tax year as a residence and includes a dwelling unit leased by the taxpayer. Only dwelling units that are generally depreciable real property or depreciable property subject to Sec. 168 that are placed in service after Dec. 31, 1986, qualify as a "home" for these purposes.

Otherwise deductible home expenses

Although taxpayers using the safe harbor cannot depreciate the portion of their home used for qualified business purposes, they can claim allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A. These itemized expenses do not have to be allocated between personal and business use of the home, as is the case for taxpayers using actual expenses to calculate the deduction, and taxpayers do not have to deduct the portion of the itemized expenses allocable to the business use of the home from the gross income derived from the qualified business use of the home for purposes of determining the gross business income limitation. As a result of not taking depreciation under the safe harbor, a taxpayer will not have to recapture depreciation upon the sale of the home, since the depreciation deduction allowable for that portion of the home used in a qualified business is deemed to be zero.

Direct expenses deductible

In addition, any business expenses unrelated to the qualified business use of the home can be deducted by a taxpayer using the safe harbor. These expenses include expenses for advertising, wages, supplies, etc.

Business gross income limitation

The amount of the deduction computed under the safe harbor is limited to the gross income derived from the qualified business use of the home reduced by the business deductions unrelated to the use of the home. To the extent that the safe-harbor amount exceeds the net income from the qualified business use of the home, it cannot be carried over to succeeding years and claimed as a deduction in any other year. This differs from the treatment of any amount of the deduction that is not deductible due to the gross income limitation in a year during which the taxpayer calculated and substantiated the actual expenses for the home office deduction. In the latter case, the excess can be carried over and deducted, subject to all other applicable restrictions, in the next succeeding tax year in which the taxpayer calculates and substantiates actual expenses for purposes of the home office deduction.


The new safe-harbor method undoubtedly will reduce recordkeeping and the calculation, allocation, and substantiation of actual expenses of a home office. It will also eliminate or reduce recapture of depreciation when taxpayers sell their home. However, taxpayers should make a rough calculation of home office expenses under the traditional method to compare the resulting amount with the safe harbor. Although it is more burdensome and complex, the traditional method may yield a sufficiently larger deduction (as well as permitting a carryover) and be worth the extra effort.

Thomas R. Wechter, J.D., LL.M. (Tax), is a partner with Duane Morris LLP in the Chicago office and concentrates his practice in tax planning for individuals, corporations, and partnerships and in tax controversy matters in front of the IRS and before the Tax Court, U.S. Court of Federal Claims, and the district courts.

Previously published in the AICPA Tax Insider

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. The Duane Morris Institute provides training workshops for HR professionals, in-house counsel, benefits administrators and senior managers.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.