Also, if your home office expenses exceed your gross income less business expenses, the new method, unlike the old, forbids you to carry over the excess to future years. If you switch to the safe harbor method, you also lose any prior year's carryover.
An added wrinkle: If you switch later to the old deduction method, you must account for the prior depreciation although only as
basis for depreciation
. That means, according to the IRS, you multiply the cost or other basis of the property by the percentage of business/investment use and then subtract any credits and deductions allocable to the property.
Rather than simplify, this complicates the depreciation calculation: You must skip the years when depreciation isn't charged to determine basis for the current year, but account for those years when determining which year's depreciation to deduct.
Finally, once you've filed with one choice, you cannot amend the return to change the method of deduction. If you have more than one home and you intend to take the home office deduction for offices in each home, you are also limited to using the safe harbor for only one of the offices in any one year.
You're not required to use the safe harbor rule for any of the offices -- a choice some will clearly make despite this IRS stab at simplification.
-- By Jim Blankenship, an an independent, fee-only financial planner at Blankenship Financial Planning in New Berlin, Ill., and author of An IRA Owner's Manual and A Social Security Owner's Manual. His blog is Getting Your Financial Ducks In A Row, where he writes regularly about taxes, retirement savings and Social Security.
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