When should the new safe harbor method for deducting home-office expenses be elected?

The new safe harbor provides an attractive option for taxpayers who qualify to deduct home-office expenses but want to avoid the burdensome compliance and substantiation requirements under the actual-expense method. It also may make sense to elect it where the taxpayer has lower amounts of actual home-office expenses, a smaller home office relative to the total area of the home, or plans to sell the home.

In many situations, however, the safe harbor method will not produce the largest home-office deduction. In such cases, taxpayers must choose whether to compare the allowable deductions under both the safe harbor and actual-expense methods each year to determine which is most beneficial or to claim the safe harbor deduction because it provides a reasonable benefit without the extra effort of computing the deduction under the actual-expense method. (S. L. Megaard and M. M. Megaard, 119 Journal of Taxation 5 (July 2013)).

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