A guide to qualifying for and calculating the home office deduction, including the simplified and regular methods, qualifying criteria, and common mistakes to avoid.
Confirm you use part of your home exclusively and regularly for business
Exclusive use means the space is used only for business — a desk in a corner of your bedroom qualifies if that corner is never used for personal activities. A kitchen table where you also eat dinner does not qualify.
Verify the space is your principal place of business or where you meet clients
Your home office qualifies as your principal place of business if you do most of your administrative or management work there, even if you perform services at other locations. Meeting clients or customers in the space also qualifies.
Confirm you are self-employed, a freelancer, or an independent contractor
W-2 employees cannot claim the home office deduction on their federal return, even if they work from home full-time. This changed with the 2017 tax reform and remains in effect through 2025. Some states still allow it for employees.
If you run a daycare, note the exclusive-use test does not apply
Home daycare providers can deduct based on time and space used, even if the area doubles as personal living space. Calculate the percentage by multiplying the area percentage by the time-use percentage (hours of daycare per day / 24).
If you store inventory or product samples, the space qualifies without the exclusive-use test
You can deduct a storage area even if it's also used personally, but only if your home is the only fixed location for your business. The space must be identifiable and suitable for storage — a closet or garage section counts.
Measure Your Home Office Space
Measure the square footage of your dedicated office space
Measure length times width of the space used exclusively for business. A room that is 10 feet by 12 feet is 120 square feet. If you use part of a room, measure only the business portion.
Calculate the total square footage of your home
Include all living space: bedrooms, living rooms, kitchens, bathrooms. Don't include unfinished basements, garages (unless part of your office), or attics that aren't livable space. This number is the denominator in your percentage calculation.
Calculate your business-use percentage (office square footage / total home square footage)
A 150 sq ft office in a 1,500 sq ft home = 10% business use. This percentage is applied to indirect expenses like rent, mortgage interest, utilities, and insurance. Higher percentages increase your deduction but also increase audit scrutiny above 20-25%.
Choose the Simplified Method
Multiply your office square footage by $5 per square foot (max 300 sq ft)
The maximum simplified deduction is $1,500 (300 sq ft x $5). If your office is 200 sq ft, the deduction is $1,000. This method requires no tracking of actual expenses and no depreciation calculations.
Report the deduction directly on Schedule C, Line 30
With the simplified method, you still claim mortgage interest and property taxes as itemized deductions on Schedule A. There's no depreciation recapture when you sell your home. This is the key advantage over the regular method.
Note the simplified method deduction cannot create a business loss
If your Schedule C shows a net loss before the home office deduction, you cannot use the simplified method to increase that loss. Any unused deduction does not carry forward. The regular method allows carryforward of disallowed expenses.
Choose the Regular Method (Form 8829)
Gather direct expenses: costs that apply only to your office (painting the office, dedicated phone line)
Direct expenses are 100% deductible. If you painted only your office for $500, you deduct the full $500. A dedicated business phone line or internet connection used only in the office is also a direct expense.
Gather indirect expenses: mortgage interest or rent, utilities, insurance, repairs
Indirect expenses are deductible at your business-use percentage. If your percentage is 12% and your annual rent is $24,000, you deduct $2,880. Include: rent/mortgage interest, utilities, homeowner's insurance, general repairs, and pest control.
Calculate depreciation on the business portion of your home if you own it
Depreciation is based on the smaller of your home's fair market value or adjusted basis when you started using the office. The residential depreciation period is 39 years. On a $300,000 home with 10% office use, annual depreciation is about $769.
Complete Form 8829 and transfer the deduction to Schedule C, Line 30
Form 8829 walks through the calculation step by step. If your deduction is limited by net business income, the disallowed portion carries forward to the next year. Keep Form 8829 with your records even if you e-file.
Be aware of depreciation recapture if you sell your home later
When you sell your home, you must recapture depreciation taken on the office portion and pay tax at 25% on that amount. If you claimed $5,000 in depreciation over several years, you'll owe $1,250 in recapture tax at sale.
Compare Methods and Decide
Calculate your deduction under both methods to see which is larger
The regular method usually saves more for homeowners with significant mortgage interest and property taxes. The simplified method tends to win for renters with modest expenses or office spaces under 200 sq ft.
Factor in the time and recordkeeping savings of the simplified method
The simplified method requires zero expense tracking — just measure your space. The regular method needs year-round recordkeeping of every utility bill, insurance payment, and repair receipt. For savings under $500, the simplified method may not be worth the hassle.
Note that you can switch methods from year to year
You're not locked in. You can use the simplified method one year and the regular method the next. However, if you switch from regular to simplified, you cannot deduct depreciation for the simplified year and you lose any carryforward amounts.
Maintain Records for Audit Protection
Take photos of your dedicated workspace showing exclusive business use
Date-stamped photos of your office, showing a desk, computer, and business supplies — with no personal items like a bed or TV — are strong evidence in an audit. Update photos annually or when you rearrange the space.
Keep a floor plan or diagram showing the office area within your home
A simple hand-drawn diagram with measurements is fine. Label the office area and total home area. This documents your square footage calculation and business-use percentage in case of an IRS inquiry.
Save all expense receipts and utility bills for 3+ years after filing
Organize receipts by category: mortgage/rent, utilities, insurance, repairs, and direct office expenses. Digital scans or photos of receipts are acceptable. The IRS can audit your return up to 3 years from the filing date.
Document your business use with a calendar or work log if space is shared
If your office is a dedicated room, exclusive use is clear. If you carved out part of a larger room, a work log showing regular business use during business hours strengthens your claim. Even 2-3 months of logs is helpful.
Frequently Asked Questions
Can W-2 employees claim the home office deduction?
No. Since the Tax Cuts and Jobs Act of 2018, W-2 employees cannot claim the home office deduction on their federal return, even if their employer requires them to work from home. This rule applies through at least the 2025 tax year. Self-employed individuals, independent contractors, and gig workers remain eligible. A few states (like New York) still allow a state-level deduction for employees with home offices. Tax laws change frequently — verify current rules with the IRS or a tax professional.
Does a home office increase my audit risk?
The home office deduction does not automatically trigger an audit, but it is historically scrutinized more closely when claimed. The IRS looks for two things: exclusive use (the space cannot double as a guest room or play area) and regular use (occasional work does not qualify). Keeping photos of your workspace, a floor plan with measurements, and consistent expense records significantly reduces audit risk. The simplified method ($5/sq ft) draws less scrutiny than the regular method because there are fewer calculations to verify.
Which is better: the simplified method or the regular method?
The simplified method caps at $1,500 (300 sq ft at $5/sq ft) and requires minimal recordkeeping. The regular method has no dollar cap and deducts actual expenses proportional to your office percentage of total home area. If your home expenses are high (mortgage interest, property taxes, utilities, repairs) and your office takes up more than 10% of your home, the regular method usually yields a larger deduction. For small offices in low-cost areas, the simplified method often produces a similar result with far less paperwork.
Can I claim a home office deduction if I also rent a coworking space?
Yes. Having an external office or coworking space does not disqualify your home office, as long as the home space is still used regularly and exclusively for business. Many self-employed people deduct both — the coworking membership as a business expense on Schedule C and the home office on Form 8829. The key test is whether your home office is your principal place of business or a place where you regularly meet clients.
Does the home office deduction affect my home sale exclusion?
If you claim the regular method and take depreciation on your home office, you may owe depreciation recapture tax (at 25%) on the depreciated amount when you sell. However, the home office deduction does not reduce your $250,000/$500,000 capital gains exclusion on a primary residence sale, as long as the office is within the home (not a separate structure). The simplified method avoids depreciation recapture entirely since it does not include a depreciation component.