Home Office Deduction Basics: Who Qualifies, and Simplified vs. Regular Method
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How we wrote this: A summary based on IRS pages and Publication 587 (linked below). This is general information, not tax advice. Rules and amounts can change, so check the current IRS guidance or ask a tax professional about your situation.
If you run a business from home, part of your housing costs may be deductible. The rules are stricter than many people assume, and choosing the right method can save both money and paperwork.
Who can claim it
IRS Topic no. 509, Business use of home, says the deduction is for people who are self-employed or partners. The simplified option page adds an important point: employees can no longer claim a home office deduction on their federal return, because miscellaneous itemized deductions for employee business expenses were eliminated for tax years beginning after 2017.
To qualify, you must use part of your home in one of these ways, per Topic 509:
- Exclusively and regularly as your principal place of business.
- Exclusively and regularly to meet or deal with patients, clients or customers in the normal course of business.
- A separate structure (such as a detached studio or garage) used exclusively and regularly for the business.
- Regular storage of inventory or product samples, if your home is the business's only fixed location.
- For rental use, or as a daycare facility.
"Exclusive use" is strict
Topic 509 gives the example of an attorney who uses a den both for writing legal briefs and for personal purposes: no deduction for the den. A desk in the corner of a guest room you also use for guests generally fails the test. A room that's used only for work passes.
Principal place of business can include a space used for administrative or management work, such as billing, scheduling and bookkeeping, if there's no other fixed location where you do substantial amounts of that work.
Two ways to calculate it
| Simplified method | Regular method | |
|---|---|---|
| How it works | $5 per square foot of business space | Actual expenses times the business percentage of your home |
| Maximum space | 300 square feet (so up to $1,500) | No square-foot cap |
| Depreciation | None, and no depreciation recapture when you sell | Depreciation deduction for the business part; recapture on sale |
| Mortgage interest and property taxes | Claimed in full on Schedule A if you itemize | Split between Schedule A and your business schedule |
| If the deduction exceeds business income | Excess can't be carried over | Excess may be carried over |
| Form | Entered directly on Schedule C | Form 8829 for Schedule C filers |
Source: the IRS simplified option comparison and Topic 509. Under either method, the deduction can't exceed the gross income from the business use of your home, less business expenses.
You can choose a method each year by using it on a timely filed original return, but you can't switch methods for that year afterward. If you go from simplified to regular later, special depreciation tables apply.
Rule of thumb: the simplified method suits a small office in a modest home and saves recordkeeping. The regular method may give a bigger deduction for a larger space or higher housing costs, at the price of more records and depreciation recapture.
Records to keep
- A floor plan or measurements showing the office's square footage and the home's total.
- Photos showing the space is used only for business.
- For the regular method: mortgage interest or rent, utilities, insurance, repairs and property tax records.
- Keep them as long as the IRS says. See our guide to how long to keep business records.
Setting up the space
A dedicated room makes the exclusive-use test easier and helps you focus. Our home office ergonomics checklist and Wi-Fi setup guide cover the practical side.