Quick answer
If you use part of your home regularly and exclusively for your business, you can deduct it. There are two ways:
- Simplified method: $5 per square foot, up to 300 sq ft. Maximum deduction: $1,500. No receipts for home costs needed.
- Regular method (Form 8829): deduct the business percentage of your actual rent or mortgage interest, utilities, insurance, repairs and depreciation. More work, but often a much bigger deduction.
You can switch methods from year to year. Renters qualify too.
Do you qualify?
You must meet both tests:
- Exclusive use. The space is used only for business. A desk in the corner of the guest room counts if that corner is used only for work. The dining table where you also eat doesn’t.
- Regular use. You use it on a continuing basis, not occasionally.
And the space must be one of these:
- Your principal place of business. It qualifies if you do your administrative work there (billing, scheduling, bookkeeping) and have no other fixed location for it, even if you meet clients elsewhere.
- A place where you meet clients in the normal course of business.
- A separate structure (a detached studio or garage) used for the business.
Two exceptions to the exclusive-use rule: space used to store inventory or product samples, and licensed daycare facilities.
W-2 employees who work from home can’t take this deduction. It’s for self-employed people only.
Method 1: simplified
Multiply the office’s square footage (maximum 300) by $5.
| Office size | Deduction |
|---|---|
| 100 sq ft | $500 |
| 150 sq ft | $750 |
| 200 sq ft | $1,000 |
| 300 sq ft or more | $1,500 |
Pros: no calculations, no depreciation and no depreciation recapture when you sell your home. Homeowners still claim all mortgage interest and property taxes as itemized deductions.
Cons: the $5 rate hasn’t changed since 2013. It’s capped at $1,500 and can’t create a loss or carry over to next year.
Method 2: regular (actual expenses)
Step 1: business-use percentage. Office square footage ÷ total home square footage. A 180 sq ft office in a 1,200 sq ft apartment = 15%.
Step 2: sort your expenses.
| Type | Examples | How much you deduct |
|---|---|---|
| Direct | Painting or repairing the office only | 100% |
| Indirect | Rent, mortgage interest, property tax, utilities, homeowners or renters insurance, HOA fees, general repairs, security system | Business % |
| Depreciation (owners) | The home’s building value (not land) over 39 years | Business % |
| Unrelated | Lawn care, repairs to rooms you don’t use for work | 0% |
Step 3: apply the income limit. Your home office deduction can’t exceed the net profit from the business. Anything left over carries forward to next year.
Which method saves more? A worked example
Jordan rents a 1,200 sq ft apartment and uses a 180 sq ft room only as an office (15%).
| Annual cost | Total | 15% business |
|---|---|---|
| Rent ($1,900/month) | $22,800 | $3,420 |
| Utilities | $2,400 | $360 |
| Renters insurance | $240 | $36 |
| Regular method total | $3,816 | |
| Simplified method (180 × $5) | $900 |
The regular method gives Jordan $2,916 more in deductions, worth about $1,050 in lower income and self-employment tax. For renters in expensive cities, the regular method nearly always wins.
The simplified method tends to win when your home is paid off, your home is small and cheap to run, or you want to avoid recordkeeping.
Homeowners: the depreciation catch
With the regular method, a homeowner deducts depreciation on the office part of the house. When you sell, that depreciation is taxed (recaptured) at up to 25%, even though the rest of your gain may be tax-free under the $250,000/$500,000 home sale exclusion. It’s still usually worth taking, but know the trade-off. Renters don’t have this issue.
How to claim it
- Simplified: fill in line 30 of Schedule C directly.
- Regular: complete Form 8829 and carry the result to line 30 of Schedule C.
Keep a floor plan or photos showing the office and its measurements, plus your rent, utility and insurance records.
Frequently asked questions
Can I claim a home office if I also work at a coworking space?
Yes, if the home office is where you do your administrative and management work and you use it regularly and exclusively.
Does the internet bill count as a home office expense?
Internet is usually deducted separately on Schedule C as a utility at its business-use percentage. It isn’t limited to the office percentage. See Can I Deduct My Phone and Internet Bill as a Freelancer?
Can I use both methods in the same year?
Not for the same home. You can change methods from one year to the next.
Does a home office increase audit risk?
A legitimate home office claimed with good records is fine. The deduction is common among the self-employed. Just meet the exclusive-use test honestly.
This article is general information, not tax advice. Consult a CPA or Enrolled Agent for your situation.
Sources
IRS Publication 587, Business Use of Your Home; IRS: Simplified option for home office deduction; Instructions for Form 8829. Example figures are FreelancerTaxHQ illustrations.