New optional safe harbor for home office expense (Rev Proc 2013-13)

Rev Proc 2013-13 announces a new, optional safe harbor for home office expenses.

For taxable years beginning on or after 1 Jan 2013 a taxpayer can choose to forego allocating expenses and figuring depreciation to determine the home office deduction.

Instead, they can simply calculate the square footage of the area that is a qualified business use (the usual regular and exclusive use test appears to apply) not to exceed 300 sq ft and then multiply it by an IRS-set rate (current $5/sq ft).

The election for a given year is irrevocable for that year, but you can change back and forth from year to year without the need for IRS permission. Any year you choose the safe harbor you do not take depreciation and the allowable depreciation for that portion of the home for that year is also zero.

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However, I have a problem with 4.04 of the document: It is contrary to what the code directly states.

If the point were to not require a taxpayer to compute Form 8829, this method fails in most cases, especially 1) Where there is an unused carry forward, and

2) where there are AGI-dependent computations elsewhere on the return affected by "otherwise allowable" (tier 1) expenses. Obviously, this method computes tier 2 expenses only - with a maximum deduction of $1,500 and no carry forward. At best, this would be oriented toward people who are renters of their residences because tier 1 expenses and depreciation are claimable only by property owners. Anyone selling a home which has business use will obviously NOT elect this safe harbor.

How does this simplify things? Prudent taxpayers will still have to compute a form 8829 to see whether this "safe harbor" is an advantage or not. Regardless, if a taxpayer has an amount carrying forward, the 8829 still needs to be filed even if just to pass the carry forward through the year to the next (and eventually to a) year where actual expenses are once again claimed in order to preserve that carry forward.