If you run your business from home, part of what you spend on your house or apartment may be deductible. The home office deduction lets eligible self-employed people deduct a share of costs such as rent, mortgage interest, utilities, insurance, and repairs. The catch is that the IRS has strict rules about which space qualifies.
This guide explains who can claim the home office deduction, the tests your space must meet, and how the simplified and regular methods compare.
Who Can Claim the Home Office Deduction?
The deduction is available to self-employed people, such as sole proprietors and independent contractors, who use part of their home for their business. It applies whether you own or rent, and it can cover a house, apartment, condo, mobile home, or a separate structure on your property, such as a detached garage or studio.
If you work from home as an employee for someone else, different rules apply. The IRS explains who qualifies in Publication 587, Business Use of Your Home.
The Two Main Tests: Regular and Exclusive Use
To qualify, the space generally must be used regularly and exclusively for your business.
- Exclusive use means the space is used only for business. The IRS says you cannot deduct expenses for any part of your home that you use for both personal and business purposes. A desk in the corner of the family living room that also serves as a dining table usually does not qualify.
- Regular use means you use the space for business on a continuing basis, not just once in a while.
The space does not have to be a full room. A clearly separated area used only for business can qualify.
Your Home Must Also Be a Business Location
Besides regular and exclusive use, the space must meet one of the IRS location tests. The most common is that your home is the principal place of business. The IRS looks at where you do your most important business activities and where you spend most of your business time. A home office can also qualify if you use it for administrative or management tasks and have no other fixed location where you do much of that work.
Other ways to qualify include regularly meeting clients or customers there, or using a separate structure that is not attached to your home for business.
Two Exceptions to the Exclusive Use Rule
- Storage of inventory or product samples. If your home is the only fixed location of a business that sells products, space you use regularly to store inventory or samples can qualify even if it is not used exclusively for business.
- Daycare facilities. The IRS says exclusive use is not required for a qualifying daycare business run from your home.
Method 1: The Simplified Method
The simplified method uses a flat rate instead of your actual expenses. According to the IRS simplified option page, you multiply $5 by the square footage of the business part of your home, up to a maximum of 300 square feet. That makes the largest possible deduction under this method $1,500 per year.
- You do not need to track or split your actual home expenses.
- Depreciation is treated as zero, so there is nothing to recapture later.
- The deduction cannot be more than the gross income from the business use of your home, and you cannot carry an unused amount to a later year.
Example (hypothetical): A freelance designer uses a 150-square-foot room only for work. Under the simplified method, the deduction is 150 × $5 = $750.
Method 2: The Regular Method
The regular method uses your actual expenses. You figure the percentage of your home used for business, usually by dividing the office square footage by the home’s total square footage. Then you apply that percentage to indirect expenses that benefit the whole home.
- Direct expenses are costs only for the office itself, such as painting or repairing that room. These are generally deductible in full.
- Indirect expenses are costs for the whole home, such as rent, mortgage interest, real estate taxes, insurance, utilities, and general repairs. Only the business percentage is deductible.
- Homeowners also figure depreciation on the business part of the home.
Self-employed people who file Schedule C figure the regular method on Form 8829. Like the simplified method, the deduction is limited by the income from your business, but under the regular method some expenses that go over the limit can be carried forward to the next year.
Example (hypothetical): A consultant’s office is 200 square feet in a 2,000-square-foot apartment, so the business percentage is 10%. If rent, utilities, and renter’s insurance total $24,000 for the year, the indirect expenses allocated to the office are $2,400.
Simplified vs. Regular Method at a Glance
| Feature | Simplified Method | Regular Method |
|---|---|---|
| How it is figured | $5 per square foot, up to 300 sq. ft. | Actual expenses × business-use percentage |
| Maximum deduction | $1,500 | No set maximum, but limited by business income |
| Recordkeeping | Square footage and qualifying use | All home expenses, plus square footage |
| Depreciation | None | Yes, for homeowners |
| Carryover of excess | No | Yes, for some expenses |
The simplified method saves time. The regular method can produce a larger deduction when your actual costs are high. The IRS allows you to choose either method each year.
Records to Keep
- A floor plan or measurements showing the office and total home square footage.
- Photos showing the space is set up and used only for business.
- Receipts and statements for rent, mortgage interest, utilities, insurance, and repairs if you use the regular method.
- Records of client meetings or business activity at home, if relevant.
For more on what to keep and for how long, see our guide to small business tax recordkeeping.
Common Home Office Deduction Mistakes
- Claiming a shared space. A guest room or kitchen table that is also used personally generally does not meet the exclusive use test.
- Deducting more than the business earned. The deduction is limited by the income from your business.
- Counting expenses twice. If you deduct a share of internet or phone costs as a home office expense, do not deduct the same amount again elsewhere.
- Keeping no measurements. Without square footage records, the deduction is hard to support.
The home office deduction is one of many write-offs available to small businesses. See our guide to small business tax deductions for the bigger picture, and our self-employment tax calculator to estimate the tax on your net profit.
Frequently Asked Questions
Can I claim the home office deduction if I rent?
Yes. Renters can qualify. Under the regular method, the business percentage of your rent is an indirect expense.
What is the maximum home office deduction under the simplified method?
$1,500 per year, which is $5 per square foot for up to 300 square feet.
Does my home office have to be a separate room?
No. A clearly defined area can qualify, as long as it is used regularly and only for business.
Which form do I use?
Self-employed people who file Schedule C use Form 8829 for the regular method. Under the simplified method, the deduction is figured with a worksheet and entered on Schedule C.
Conclusion
The home office deduction can lower your taxable income, but only if your space meets the IRS tests. Use the space regularly and only for business, choose the method that fits your records, and keep measurements and receipts that support your claim. When your situation is unusual, check Publication 587 or ask a tax professional.