Simplified Method for OIH

[Lion EA]

A client started his business in 2020 and wants to use the simplified method. Do I prorate the simplified method for eight months? There doesn't seem to be an entry for start date when not depreciating.

[jklcpa]

According to the IRS Q&A on OIH, you prorate and only count the month if it was for more than 15 days. This is accomplished by paring down the square footage by coming up with the average sq ft over 12 months.  This should help:

IRS Q&A page on OIH

Quote

Q13.  How is the allowable square footage determined under the simplified method when 1) the qualified business use of the home is for less than the entire taxable year, or 2) the portion of the home used in a qualified business use changes during the taxable year?

A.  You must determine the average of the monthly allowable square footage for the taxable year.  For this purpose, no more than 300 square feet may be taken into account for any one month, and you only account for a month in which you had 15 or more days of a qualified business use of your home.

For example, you begin using 400 square feet of your home for a qualified business use on July 20, and continue that use until the end of the taxable year.  You have 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)).

 

[Hahn1040]

In ATX on the Home Office Expense input form, there are boxes to check to indicate

• Simplified method
• if home office was not the entire year
• then there are check boxes to indicate which months qualified:  Check for 15 or more days qualified business use of the home. 
• Then it prorates the deduction based on the number of months that the office qualified

[Lion EA]

Thank you, all. My client had the grand total all worked out -- correctly -- but I couldn't see the right data entry to show the detail without prorating the square footage. Now I can show him that the IRS instructions DO match his computation. (This is a client who never told me last April that he was starting a biz then, so Surprise! as I started preparing his 2020 return last week. In response to my requests, the expenses dribbled in. Want to get this done today.)

[Lion EA]

You know, I searched the IRS website for a very long time last night, and found lots of articles about the Simplified Method for OIH, but not a one mentioned less than a year, a biz starting or ending. Many of them discussed what to do for 2020 if the Simplified Method was or was not used in 2019. My search terms (and I used several combinations) never took to me to a Q&A page. That's why I love this forum: multiple sets of eyes, multiple ways to look for information... Thank you.

[Catherine]

I rarely have ANY luck searching the IRS website for information.  Sometimes I do better using an external search engine and limiting results to irs dot gov, but not always.  But the folks on this forum always find results!  I think I am keyword-impaired.  

[Lion EA]

I Google but use the irs.gov finds and the AnswerConnect finds, but that means only one search to get all those. Well, as many searches as I can think of combinations/permutations of search terms.

[jklcpa]

I googled "OIH for partial year" with that acronym and the IRS FAQs page was at the top of the list.

I guess I get lucky with a lot of my searches.

[Lion EA]

I was including "simplified method" in everything I could think of, such as OIH simplified method for part year and simplified method OIH for less than one year, that kind of thing, and just getting IRS articles about using the sq ft no more than 300. Prorating the sq ft seemed like a clunky workaround, but it works; and knowing the IRS cites the average for the taxable year means I'm comfortable with the method and have no problem with this client who'd worked out the total to use in his own way. I'm alerting him that he'll see 160 on the worksheet instead of 240. And, I'll get this off my desk for him to eSign Saturday.

[jklcpa]

It does seem clunky, and if your software carries the sq ft over to next year, you'll have to remember to increase it to the full sq ft, not the diluted average.

[Catherine]

Judy beat me to it - make a note for yourself to double check the square footage for 2021.  I've used the adjust-the-size method in the past as a forced correction; good to know it's an officially blessed method!  

[Lion EA]

And, I can get the $800 the client expects using the IRS method. Sometimes it's NOT a blessing to have smart clients! Using what CCH told me (use a biz % override) I can get no closer than $799 or $802. I already have a note to preparer in return that will roll over next year and a piece of paper in their paper file and opened a client2021 folder in their computer folder with a note. I'm finishing proofreading this afternoon and sending to them to eSign. Thank you all.

[BulldogTom]

On 5/14/2021 at 9:10 PM, jklcpa said:

I googled "OIH for partial year" with that acronym and the IRS FAQs page was at the top of the list.

I guess I get lucky with a lot of my searches.

You should google "next winning lottery numbers" with the luck you have.   It amazes me every time how good you are.

Tom
Modesto, CA

[jklcpa]

I should try that because I never win anything!