Simplified Option for Claiming Home Office Deduction - Revenue Procedure 2013-13

[BP.]

won't the IRS include depreciation that should have been taken? Isn't that the way it works? Depreciation factors in whether taken or not if it is allowable depreciation? How are they going to handle it if this form is used? They haven't changed the allowed or allowable rule.

http://www.irs.gov/pub/irs-drop/rp-13-13.pdf

"The depreciation deduction allowable for that portion of the home for that taxable
year is deemed to be zero."

[John of PA]

I find it very interesting that many of my clients will actually experience a higher deduction for OIH with this new 5$ per Sq. foot deduction, than what they have been taking over the years. Again it does not kick in until the 2013 tax returns.

[WhiteOleander]

Sorry, but...well, duh. I don't usually spell out things that appear obvious....thank you to those who did

No, you referred only to AGI. You made no mention of SE income. So, it is not obvious. You still have not explained the "slash".

[FEDUKE404]

Depreciation ceases

Okay but, when the time comes, won't the IRS include depreciation that should have been taken? Isn't that the way it works? Depreciation factors in whether taken or not if it is allowable depreciation? How are they going to handle it if this form is used? They haven't changed the allowed or allowable rule.

The following may answer your question. It is an excerpt from the January 15th IRS release on the upcoming form:

"Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method."

Source: IRS Office in Home

FE

[Traveling EA]

OIH deduction

I think the slashing that may have been referred to is the reduction in schedule A deductions that is once again on the returns for 2013 for high earners.

[taxea]

White:

If you deduct the mortgage interest on Schedule C it lowers the SE / Medicare tax (I know you know that just getting to what I am trying to say). If you can get the same tax benefit by taking the standard $5 / sq ft on Schedule C then you can get the additional benefit on Schedule A as well as not having to deal with depreciation.

Dusty

Okay but, when the time comes, won't the IRS include depreciation that should have been taken? Isn't that the way it works? Depreciation factors in whether taken or not if it is allowable depreciation? How are they going to handle it if this form is used? They haven't changed the allowed or allowable rule.

[taxea]

I agree, but Taxea said that the deduction is slashed. She made no mention of SE tax. Sch C would give an SE tax benefit. But, Sch A does not slash mortgage interest decution.

Sorry, but...well, duh. I don't usually spell out things that appear obvious....thank you to those who did

[BP.]

method is optional

I believe FE is correct. It will be the lesser of the two. I have a client who uses nearly 1000 sq ft of his 4500 sq ft house for inventory, meeting room, office machines, people who work for him etc. This will force some OIH's TP's to obtain a commericial office and maybe the Commmericial Realtors lobbied for this. By forcing them to obtain commerical space means higher bus related exps therefore lower net profit. Anybody at the IRS thought that one out, NOT.
Is this 300 sq ft per OIH meaning what if the TP has a his own OIH and his spouse has her own OIH in the same house. Do they each recieve max 300 sq ft if of course they use at least 300 sq ft?

OP subject- "Option"

http://www.irs.gov/pub/irs-drop/rp-13-13.pdf

" . . an optional safe harbor method that individual
taxpayers may use to determine the amount of deductible expenses attributable to
certain business use of a residence during the taxable year. This safe harbor method is
an alternative to the calculation, allocation, and substantiation of actual expenses . . . "

[AZ-Tax]

2 OIH's in same house?

1 - Great. Another version of a form which already 3 - It sounds as if the procedure will be a) meet the rules, b) measure square feet of OIH space, c) multiply by $5, d) claim lesser of $1500 or calculated amount.FE

I believe FE is correct. It will be the lesser of the two. I have a client who uses nearly 1000 sq ft of his 4500 sq ft house for inventory, meeting room, office machines, people who work for him etc. This will force some OIH's TP's to obtain a commericial office and maybe the Commmericial Realtors lobbied for this. By forcing them to obtain commerical space means higher bus related exps therefore lower net profit. Anybody at the IRS thought that one out, NOT.
Is this 300 sq ft per OIH meaning what if the TP has a his own OIH and his spouse has her own OIH in the same house. Do they each recieve max 300 sq ft if of course they use at least 300 sq ft?

[WhiteOleander]

I think you are right--maybe the same taxable income. However, if all the interest and property tax are included on schedule A, then your net income will be highter on schedule C and self-employment tax will be higher.

I agree, but Taxea said that the deduction is slashed. She made no mention of SE tax. Sch C would give an SE tax benefit. But, Sch A does not slash mortgage interest decution.

[Dusty2004]

Schedule C / SE tax

If a percentage of mortgage interest is deducted on OIH and Sch A, the taxpayer would still have the same taxable income as they would if all mortgage interest were deducted on Sch A and none OIH. I still don't see a "slash".

White:

If you deduct the mortgage interest on Schedule C it lowers the SE / Medicare tax (I know you know that just getting to what I am trying to say). If you can get the same tax benefit by taking the standard $5 / sq ft on Schedule C then you can get the additional benefit on Schedule A as well as not having to deal with depreciation.

Dusty

[Gene V]

self-employment

If a percentage of mortgage interest is deducted on OIH and Sch A, the taxpayer would still have the same taxable income as they would if all mortgage interest were deducted on Sch A and none OIH. I still don't see a "slash".

I think you are right--maybe the same taxable income. However, if all the interest and property tax are included on schedule A, then your net income will be highter on schedule C and self-employment tax will be higher.

[WhiteOleander]

Sch A does not provide for a dollar for dollar deduction. Sch A deduction is subtracted from adjusted gross income, not gross income as are expenses on Sch C or F8829

If a percentage of mortgage interest is deducted on OIH and Sch A, the taxpayer would still have the same taxable income as they would if all mortgage interest were deducted on Sch A and none OIH. I still don't see a "slash".

[taxea]

Where is it slashed on Sch A?

Sch A does not provide for a dollar for dollar deduction. Sch A deduction is subtracted from adjusted gross income, not gross income as are expenses on Sch C or F8829

[WhiteOleander]

Why would you take the full mortgage interest on Sch A where it gets slashed rather taking the allowed amount on Sch C F8829 where it is dollar for dollar?

Where is it slashed on Sch A?