- The simplified method may offer a larger home office deduction.
- If the simplified method produces a smaller home office deduction, increase in self-employment income may lead to slightly higher Social Security benefits at retirement.
- Taxpayers may change from the actual-cost method to the simplified method on a year-by-year basis.
- In any year that the simplified method is used, the depreciation taken in that year is presumed to be $0, so there would be no recapture of depreciation for those years upon the sale of the home.
- The method allows for no reduction for home mortgage interest and property tax itemized deductions.
The disadvantages of the simplified method:
- The maximum deduction allowed is $1,500.
- The simplified method may increase self-employment taxes.
- If the home office deduction causes a loss from the related business, that loss may not be carried over to future years.
- While the simplified election is made on a year-by-year basis, once an election is made, it is considered to be irrevocable and may not be changed on an amended return.
For more information about the simplified home office deduction, click this link. If you have any questions or would like another blog post on the home office deduction, let us know in the comments below!