The IRS recently issued Revenue Procedure 2013-13. This new procedure for computing the office in home deduction (OIH) is intended to simplify the process. In some instances it does. For most people it will probably create a smaller office in home deduction than the regular way of computing it but does offer some advantages.
The new way of computing the deduction is simply to take the square footage of the office and multiplying by $5. The maximum deduction possible under this procedure is $1,500 or 300 square feet. This procedure does relieve the taxpayer of a portion of the burden relating to putting together the information necessary to compute the deduction. It also allows that the deduction for home mortgage interest and property taxes can be taken in full in addition to the OIH deduction. Under the regular method these amounts must be reduced by the amount included in the OIH deduction.
Another potential advantage to the new method is that it does not require you to take a depreciation deduction and risk the need to recapture that depreciation as income on the sale of the house.
Before using the new method, you should have your tax professional look very carefully at your particular situation and explain the advantages and disadvantages of both methods.
This new method does not take effect until January 1, 2013, so you cannot use it for the income tax returns we are getting ready to prepare for 2012, but you and your tax advisor can discuss the potential effect your your situation when you discuss your current year situation.