Compare simplified ($5/sq ft) vs actual expense methods - find your maximum deduction
Updated January 2025
2025 IRS Rules
Understanding the Home Office Deduction
The home office deduction allows self-employed individuals and business owners to deduct expenses for the business use of their home. This can result in significant tax savings, but you must meet specific IRS requirements to qualify.
2025 Home Office Deduction Methods
Simplified Method
$5 per square foot Maximum 300 sq ft = $1,500 max deduction No depreciation calculations required Less recordkeeping needed
Actual Expense Method
Calculate real expenses Mortgage/rent, utilities, insurance, repairs Depreciation for homeowners Often yields larger deductions
Business Use Percentage
Office sq ft / Total home sq ft Apply to actual expenses Example: 200 sq ft / 2,000 sq ft = 10% Must be exclusive business use
Who Qualifies?
The home office deduction is available to self-employed individuals, independent contractors, freelancers, and gig workers. W-2 employees cannot claim this deduction - the Tax Cuts and Jobs Act of 2017 suspended the employee home office deduction through 2025.
Key Requirements
Regular and exclusive use: The space must be used regularly and exclusively for business
Principal place of business: It must be your principal place of business OR where you regularly meet clients
Self-employment income: You must have self-employment income to claim the deduction
How the Home Office Deduction Works
Step 1: Measure Your Space
Measure the square footage of the area used exclusively for business. This could be an entire room or a portion of a room that's clearly designated for work. The space must be used regularly and exclusively for business purposes.
Step 2: Calculate Business Use Percentage
Divide your office square footage by your home's total square footage. For example, if your dedicated office is 150 sq ft and your home is 1,500 sq ft, your business use percentage is 10%.
Step 3: Choose Your Method
Simplified Method
Multiply your office square footage by $5
Maximum 300 square feet ($1,500 deduction)
Cannot carry forward unused deduction
No depreciation recapture when you sell
Actual Expense Method
Calculate all home expenses (mortgage interest/rent, property taxes, utilities, insurance, repairs, depreciation)
Multiply total expenses by business use percentage
Can carry forward excess deduction to future years
Requires depreciation recapture when selling (homeowners)
Step 4: Report on Your Tax Return
Self-employed individuals report the home office deduction on Schedule C (Form 1040). Use Form 8829 if using the actual expense method. The simplified method is reported directly on Schedule C.
Direct vs. Indirect Expenses
Direct expenses: Benefit only the office space (painting the office, office repairs) - 100% deductible
Indirect expenses: Benefit entire home (utilities, insurance, general repairs) - deductible based on business use percentage
Home Office Deduction Eligibility
Who Can Claim the Deduction?
Eligible (Self-Employed)
Sole proprietors, freelancers, independent contractors, gig workers, partners in partnerships, single-member LLC owners
Not Eligible (Employees)
W-2 employees cannot claim the home office deduction through 2025, even if they work from home regularly
The Two Tests You Must Meet
1. Regular and Exclusive Use Test
The space must be used regularly for business (not just occasional use) and exclusively for business (not doubling as a guest room or personal space). Exception: If you use part of your home for storing inventory or product samples, exclusive use is not required.
2. Principal Place of Business Test
Your home office qualifies if it's your principal place of business. This means you:
Use it exclusively and regularly for administrative or management activities, AND
Have no other fixed location where you conduct substantial administrative activities
OR: You use the space to meet with clients, customers, or patients in the normal course of business.
Special Situations
Daycare facilities: Exclusive use test doesn't apply if you regularly use the space for daycare
Separate structures: A detached garage or studio used for business qualifies without meeting principal place of business test
Inventory storage: If you store inventory at home, exclusive use isn't required
Renters: You can claim the deduction whether you rent or own
Audit Risk Factors
The IRS pays attention to home office deductions. Reduce audit risk by:
Maintaining a dedicated, clearly defined workspace
Taking photos of your home office
Keeping detailed records of all expenses
Using the space exclusively for business
Being reasonable with your deduction amount
Record-Keeping Requirements
Why Good Records Matter
The IRS can challenge your home office deduction, especially if it seems disproportionate to your income. Proper documentation protects you in an audit and ensures you claim all legitimate deductions.
Essential Records to Keep
For Both Methods
Floor plan showing office dimensions and total home square footage
Photos of your dedicated workspace
Documentation that space is used exclusively for business
Calendar or log showing regular business use
For Actual Expense Method
Mortgage statements showing interest paid
Rent receipts or lease agreements
Property tax bills
Utility bills (electric, gas, water, internet)
Insurance declarations (homeowners/renters)
Repair and maintenance receipts
HOA fees (if applicable)
Home purchase documents (for depreciation calculation)
How Long to Keep Records
Keep home office records for at least 3 years after filing the return claiming the deduction. If you're a homeowner claiming depreciation, keep records until 3 years after you sell the home (depreciation recapture may apply).
Simplified Method Advantage
One major benefit of the simplified method is reduced recordkeeping. You only need to document your office square footage and that the space qualifies for the deduction. No need to track individual expenses or calculate depreciation.
Digital Organization Tips
Scan and save all receipts digitally
Use accounting software to categorize expenses
Take dated photos of your workspace annually
Keep a simple log of business use
Store digital copies in cloud backup
Frequently Asked Questions
The simplified method allows you to deduct $5 per square foot of your home office, up to a maximum of 300 square feet. This means the maximum deduction is $1,500. This method requires less recordkeeping than the actual expense method since you don't need to track individual home expenses.
No. The Tax Cuts and Jobs Act of 2017 eliminated the home office deduction for W-2 employees through 2025. Only self-employed individuals, independent contractors, and business owners can claim this deduction. Even if your employer requires you to work from home, you cannot claim the deduction as an employee.
It depends on your situation. The actual expense method often yields larger deductions, especially if you have high housing costs or a large business use percentage. However, it requires detailed recordkeeping. The simplified method is easier but caps out at $1,500. Use this calculator to compare both methods for your specific situation.
Your home office must be used exclusively for business. This means the space cannot double as a guest room, play area, or any other personal use. A desk in the corner of your living room where you also watch TV does not qualify. A dedicated room or clearly defined area used only for work does qualify.
Yes, if your home office is where you conduct substantial administrative or management activities and you don't have another fixed location for these activities. Alternatively, if you use your home office to regularly meet with clients, customers, or patients, you may qualify even with another office location.
With the actual expense method, you can deduct a percentage of: mortgage interest or rent, property taxes, utilities (electric, gas, water), homeowners/renters insurance, repairs and maintenance, depreciation (for homeowners), and other home-related expenses. The percentage is based on your business use of the home.
Divide the square footage of your dedicated home office by the total square footage of your home. For example, if your office is 200 square feet and your home is 2,000 square feet, your business use percentage is 10%. This percentage is applied to your indirect expenses (those that benefit the entire home).
Yes! Renters can claim the home office deduction. Instead of mortgage interest and property taxes, you deduct a portion of your rent based on your business use percentage. You can also deduct portions of utilities, renters insurance, and other applicable expenses.
Depreciation allows homeowners to deduct the cost of their home over time (27.5 years for residential property). If you use the actual expense method, you should claim depreciation as it provides significant tax savings. However, when you sell your home, you may owe depreciation recapture tax. The simplified method avoids this complexity.
Yes, you can switch between the simplified and actual expense methods from year to year. You're not locked into one method. This flexibility allows you to choose whichever method provides the larger deduction each year. However, there are special rules for depreciation if you switch methods.
The home office deduction has historically been scrutinized by the IRS, but claiming a legitimate deduction shouldn't deter you. Reduce audit risk by: maintaining good records, taking photos of your workspace, ensuring exclusive business use, and claiming reasonable deduction amounts relative to your income.
With the actual expense method, your home office deduction cannot exceed your gross income from the business. However, unused deductions can be carried forward to future years. With the simplified method, you cannot carry forward any unused deduction.
Yes, but only the business-use portion. If you use your internet 50% for business and 50% for personal, you can deduct 50% of the cost as a business expense (not as part of the home office deduction, but as a separate business expense). A dedicated business phone line is 100% deductible.
Self-employed individuals report the home office deduction on Schedule C (Form 1040). If using the actual expense method, you'll need Form 8829 (Expenses for Business Use of Your Home) to calculate the deduction. The simplified method is reported directly on Schedule C, Line 30.
Yes! If you have a side business in addition to W-2 employment, you can claim the home office deduction for the self-employed portion of your income. The space must still meet regular and exclusive use requirements, and the deduction applies to your self-employment income, not your W-2 wages.
Direct expenses benefit only your home office (like painting just the office or repairs specific to that room) and are 100% deductible. Indirect expenses benefit your entire home (utilities, insurance, general repairs) and are deductible based on your business use percentage.
No, you cannot deduct mortgage principal payments. However, you can deduct a portion of your mortgage interest and property taxes based on your business use percentage. The principal portion of your payment builds equity and is not a deductible expense.
When you sell your home, any depreciation you claimed (or were entitled to claim) may be "recaptured" and taxed at up to 25%. This is a consideration when choosing between methods. The simplified method avoids depreciation entirely, eliminating this concern. The primary residence exclusion ($250,000/$500,000) still applies to the non-business portion of gain.
Absolutely. Whether you own your home outright or have a mortgage, you can claim the home office deduction. With a mortgage, you can deduct the business-use portion of your mortgage interest (with the actual method). The mortgage payment status doesn't affect your eligibility.
You can only claim the deduction for space that meets the exclusive use test. Working from your couch occasionally doesn't count. If you have multiple dedicated workspaces (like a home office and a workshop), you may be able to include both in your calculation if both meet the requirements.
Related Tax Calculators
Explore our other tax planning tools to optimize your financial strategy.
1099 vs W-2 Calculator
Compare self-employment taxes, business deductions, and take-home pay between contractor and employee status.
Publication 587: Business Use of Your Home - comprehensive guide to the home office deduction
Publication 463: Travel, Gift, and Car Expenses - includes home office for salespeople
Publication 334: Tax Guide for Small Business - overview of small business deductions
Tax Forms
Form 8829: Expenses for Business Use of Your Home (for actual expense method)
Schedule C (Form 1040): Profit or Loss from Business - where the deduction is reported
Schedule SE: Self-Employment Tax
Key Deadlines for 2025
April 15, 2025: Individual tax return due date
October 15, 2025: Extended tax return due date
Quarterly estimates: April 15, June 16, September 15, January 15
Professional Consultation
While this calculator provides estimates for tax planning, complex situations may require professional guidance. Consider consulting a CPA or tax attorney for:
High-value home office deductions relative to income
Depreciation calculations and recapture planning
Mixed-use situations or multiple business locations
State-specific home office rules
Audit representation if questioned by the IRS
Need Professional Tax Guidance?
Get personalized advice on home office deductions, self-employment taxes, and business structure from Attorney Sergei Tokmakov.