SECTION 4. APPLICATION

.01 Computation of the safe harbor amount.

(1) A taxpayer determines the amount of deductible expenses for a qualified business use of the home for the taxable year under the safe harbor method by multiplying the allowable square footage by the prescribed rate.

(2) The allowable square footage is the portion of a home used in a qualified business use of the home, but not to exceed 300 square feet.

(3) The prescribed rate is $5.00. The Service and the Treasury Department may update this rate from time to time as warranted.

2013–6 I.R.B. 479 February 4, 2013

(4) For purposes of determining the allowable square footage under section 4.01(2) of this revenue procedure, a taxpayer with a qualified business use of a home for a portion of the taxable year (for example, a seasonal business or a business that begins during the taxable year), or a taxpayer who changes the square footage for a qualified business use of a home during the taxable year (for example, an increase or decrease in the square footage), must determine the average of the monthly allowable square footage for the taxable year. In determining the average monthly allowable square footage, no more than 300 square feet may be taken into account for any one month, and a taxpayer shall only be treated as having a qualified business use of a home in a month in which the taxpayer had 15 or more days of a qualified business use of the home. For example, a taxpayer who files federal income tax returns on a calendar year basis, begins using 400 square feet of his or her home for a qualified business use on July 20, and continues that use until the end of the taxable year, has an average monthly allowable square footage of 125 square feet (300 square feet for each month August through December divided by the number of months in the taxable year ((300 + 300

• 300 + 300 + 300)/12)).

(5) Taxpayers sharing a home (for example, roommates or spouses, regardless of filing status), if otherwise eligible, may each use the safe harbor method provided by this revenue procedure, but not for a qualified business use of the same portion of the home. For example, a husband and wife, if otherwise eligible and regardless of filing status, may each use the safe harbor method for a qualified business use of the same home for up to 300 square feet of different portions of the home.

(6) A taxpayer who has more than one qualified business use of the same home for a taxable year and who elects the safe harbor method must use the safe harbor method for each qualified business use of the home. However, a taxpayer who has a qualified business use of a home and a rental use for purposes of § 280A(c)(3) of the same home cannot use the safe harbor method for the rental use. A taxpayer who has more than one qualified business use of the same home for a taxable year is limited to a maximum of 300 square feet. If a taxpayer who has more than one qualified

enue procedure. However, taxpayers with a qualified business use of a home who also have a rental use of the same home under § 280A(c)(3) must allocate a portion of the expenses described in this section 4.04 to the rental use to the extent required under § 280A and any regulations thereunder.

.05 Business deductions unrelated to qualified business use of a home. A taxpayer using the safe harbor method for a taxable year may deduct, to the extent allowed by the Code and regulations, any trade or business expenses unrelated to the qualified business use of the home for that taxable year (for example, expenses for advertising, wages, and supplies).

.06 Depreciation for a taxable year in which the safe harbor method is used . A taxpayer using the safe harbor method for a taxable year cannot deduct any depreciation (including any additional first-year depreciation) or § 179 expense for the portion of the home that is used in a qualified business use of the home for that taxable year. The depreciation deduction allowable for that portion of the home for that taxable year is deemed to be zero.

.07 Depreciation for a subsequent tax- able year in which actual expenses are used.

(1) Use of optional depreciation table . If a taxpayer uses the safe harbor method for a taxable year and calculates and substantiates actual expenses for purposes of § 280A for any subsequent taxable year, the taxpayer must calculate the depreciation deduction allowable in the subsequent year for the portion of the home that is used in a qualified business use of the home by using the appropriate optional depreciation table applicable for the property, regardless of whether the taxpayer used an optional depreciation table for the property in its placed-in-service year. The optional depreciation tables for MACRS property are provided in the annual IRS Publication 946, How To Depreciate Property . For purposes of this section 4.07, the appropriate optional depreciation table is based on the depreciation system, depreciation method, recovery period, and convention applicable to the § 1250 property in its placed-in-service year.

(2) Computation of the depreciation deduction allowable . A taxpayer described in section 4.07(1) of this revenue procedure computes the allowable depreciation deduction for a subsequent year

by multiplying the remaining adjusted depreciable basis (as determined under § 1.168(k)–1(d)(2)(i)) allocable to the portion of the home used in a qualified business use by the annual depreciation rate for the applicable year specified in the appropriate optional depreciation table. Furthermore, the applicable year is the year that corresponds with the current taxable year based on the placed-in-service year of the property.

.08 Limitations . (1) Taxpayers using this safe harbor method to compute their deduction must continue to satisfy all requirements of § 280A for determining their eligibility to claim a deduction. For example, a taxpayer may claim a deduction for a business use described in § 280A(c)(1) for a portion of a residence only if that portion is exclusively used on a regular basis for business purposes. As a further example, a taxpayer who is an employee may deduct expenses attributable to a business use of a residence described in § 280A(c)(1) only if that use is for the convenience of the taxpayer’s employer.

(2) The amount of the deduction computed using the safe harbor method provided by this revenue procedure cannot exceed the gross income derived from the qualified business use of the home for the taxable year reduced by the business deductions described in section 4.05 of this revenue procedure (deductions unrelated to the qualified business use of a home). Any amount in excess of this gross income limitation is disallowed and may not be carried over and claimed as a deduction in any other taxable year.

(3) A taxpayer who uses the safe harbor method provided by this revenue procedure for a taxable year may not deduct in that taxable year any disallowed amount carried over from a prior taxable year during which the taxpayer calculated and substantiated actual expenses for purposes of § 280A. A taxpayer who calculated and substantiated actual expenses for purposes of § 280A in a prior taxable year and whose deduction was limited by the gross income limitation in § 280A(c)(5) may deduct the disallowed amount, subject to all other applicable restrictions, in the next succeeding taxable year in which the taxpayer calculates and substantiates actual expenses for purposes of § 280A.

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business use of the same home for the taxable year uses more than 300 square feet, then the taxpayer must allocate the square footage among the qualified business uses of the home. The taxpayer may allocate the square footage in any reasonable manner, but the taxpayer may not allocate more square footage to a qualified business use of a home than is actually used in that qualified business use of the home.

(7) A taxpayer with qualified business uses of more than one home for a taxable

year may use the safe harbor method for only one home for that taxable year. However, the taxpayer, if otherwise eligible, may calculate and substantiate actual expenses for purposes of § 280A for the business use of any other homes for that taxable year.

.09 Examples. The following examples illustrate the application of sections 4.01 through 4.08 of this revenue procedure.

Example 1 . A, a barber, is a sole proprietor who uses a room in his residence regularly and exclusively

Supplies $1,500

Advertising 800

Professional fees 300

Magazines/Subscriptions 700

Postage 100

Total $3,400

A also pays the following expenses related to his home in 2013:

Mortgage interest $10,000

Real property taxes 3,000

Homeowners’ insurance 1,500

Utilities 2,400

Repairs 900

Total $17,800

For 2013, A elects the safe harbor method provided by this revenue procedure. As provided in section 4.01 of this revenue procedure, A determines the amount of his deduction for the qualified business use of his home is $1,500 (300 sq. ft. X $5.00). As provided in section 4.04 of this revenue procedure, A deducts his mortgage interest ($10,000), and real property taxes ($3,000) as itemized deductions on his federal income tax return (Schedule A of Form 1040). As provided in section 4.05 of this revenue procedure, A deducts his ordinary and necessary business expenses that are unrelated to the qualified business use of his home ($3,400) as trade or business expenses (Schedule C of Form 1040) to the extent otherwise allowed by the Code and regulations.

As provided in section 4.01(4) of this revenue procedure, A may not deduct any portion of the actual expenses related to the qualified business use of his home for 2013 (homeowners’ insurance, utilities, and repairs). As provided in section 4.06 of this revenue procedure, A may not deduct any depreciation for the room on his federal income tax return for 2013, and the depreciation deduction allowable for the room for 2013 is deemed to be zero. Accordingly, A ’s adjusted depreciable basis in the room as of December 31, 2013, is $10,000. The gross income limitation in section 4.08(2) of this revenue procedure does not limit A ’s deduction for the qualified business use of the home because the amount of the deduction, $1,500, does not exceed the gross income derived by A from the qualified business use of his home for the taxable year reduced by the business deductions described in section 4.05 of this revenue procedure, or

$5,600 ($9,000 gross income - $3,400 of business deductions).

For 2014, A does not elect the safe harbor method and instead calculates and substantiates actual expenses for purposes of § 280A. Pursuant to section 4.07 of this revenue procedure, A must use the appropriate optional depreciation table for determining the depreciation deduction allowable for the room for 2014. The appropriate optional depreciation table provides that the depreciation rate for year two is 2.564%. Accordingly, A deducts depreciation for the room on his federal income tax return for 2014 in the amount of $256.40 ($10,000 X .02564). Consequently, A ’s adjusted depreciable basis in the room as of December 31, 2014, is reduced to $9,743.60 ($10,000 - $256.40).

Example 2 . B, an architect, is a sole proprietor who uses a room in her residence regularly and exclusively to meet with clients in the normal course of her trade or business throughout 2013. B determines that the room is 300 square feet and has a cost basis of $10,000. B placed the room in service in January 2010. For 2010, 2011, and 2012, B depreciates the room as nonresidential real property under the general depreciation system of § 168(a), using the straight-line method of depreciation, a 39-year recovery period, and the mid-month convention, but does not use the optional depreciation table. The adjusted depreciable basis of the room as of December 31, 2012, is $9,241.45. For 2013, B elects the safe harbor method provided by this revenue procedure. Pursuant to section 4.06 of this revenue procedure, B does not deduct any

to meet with customers in the normal course of his trade or business throughout 2013. A determines that the room is 350 square feet and has a cost basis of $10,000. A placed the room in service in January 2013. A depreciates the room under § 168 as nonresidential real property using the optional depreciation table that corresponds with the general depreciation system, the straight-line method of depreciation, a 39-year recovery period, and the mid-month convention. During 2013, A earns $9,000 of gross income from the business and pays the following business expenses:

depreciation for the room on her federal income tax return for 2013, and the depreciation deduction allowable for the room for 2013 is deemed to be zero. Accordingly, B ’s adjusted depreciable basis in the room as of December 31, 2013, is $9,241.45.

For 2014, B resumes calculating and substantiating actual expenses for purposes of § 280A. Pursuant to section 4.07 of this revenue procedure, B must use the appropriate optional depreciation table for determining the depreciation deduction allowable for the room for 2014 because B used the safe harbor method provided by this revenue procedure for a prior taxable year. In 2014, the room has been placed in service by B for five years. The appropriate optional depreciation table provides that the depreciation rate for year five is 2.564%. Accordingly, B deducts depreciation for the room on her federal income tax return for 2014 in the amount of $256.40 ($10,000 X .02564). Consequently, B ’s adjusted depreciable basis in the room as of December 31, 2014, is reduced to $8,985.05 ($9,241.45 - $256.40).