If you work from home as a self-employed professional, freelancer, or business owner, the home office deduction can save you hundreds — or even thousands — of dollars each year. But the IRS has specific rules about who qualifies, what counts, and how to calculate it. Getting it wrong means leaving money on the table or, worse, inviting IRS scrutiny. This guide walks you through everything you need to know.
Who Qualifies for the Home Office Deduction?
The home office deduction is available to self-employed individuals who use part of their home regularly and exclusively for business. This includes sole proprietors, single-member LLC owners, independent contractors, freelancers, and gig workers. The key phrase is "regularly and exclusively" — your home office space must be used only for business, not as a guest bedroom or play area that doubles as your workspace.
W-2 Employees Cannot Claim This Deduction
If you're a W-2 employee working from home — even full-time — you cannot claim the home office deduction on your federal tax return. The Tax Cuts and Jobs Act of 2017 eliminated the unreimbursed employee expense deduction through 2025, and Congress has not reinstated it. This deduction is exclusively for self-employed taxpayers who file Schedule C (or Schedule F for farmers).
Your home office must meet one of two tests: it must be your principal place of business, or it must be a place where you regularly meet with clients or customers. If you have another office location but use your home office for administrative and management tasks, you can still qualify — as long as there's no other fixed location where you do those administrative activities.
The Two Calculation Methods
The IRS offers two ways to calculate the home office deduction: the simplified method and the regular (actual expense) method. You can choose whichever method gives you a larger deduction each year, and you can switch between methods from year to year.
Simplified Method
The simplified method is exactly what it sounds like. You multiply the square footage of your home office (up to 300 square feet maximum) by $5 per square foot. The maximum deduction is $1,500 per year. You don't need to track actual home expenses or depreciation — just measure your office space and do the math.
| Office Size | Deduction (Simplified) |
|---|---|
| 100 sq ft | $500 |
| 150 sq ft | $750 |
| 200 sq ft | $1,000 |
| 250 sq ft | $1,250 |
| 300 sq ft (max) | $1,500 |
The simplified method is great for small offices and for people who don't want to deal with tracking receipts. But if your office is larger than 300 square feet or your actual home costs are high, you're likely leaving money on the table.
Regular (Actual Expense) Method
Not sure if your home office qualifies?
A CPA can review your situation and ensure you claim every deduction you're entitled to.
Ask a CPAThe regular method requires more record-keeping but often produces a significantly larger deduction. You calculate the business-use percentage of your home (office square footage divided by total home square footage), then apply that percentage to your actual home expenses.
Deductible expenses include mortgage interest (or rent), property taxes, homeowners insurance, utilities (electricity, gas, water, internet), home repairs and maintenance, and depreciation of your home. For a homeowner with a 200 square foot office in a 2,000 square foot home, that's a 10% business-use percentage. If annual home expenses total $24,000, the deduction would be $2,400 — significantly more than the $1,000 simplified method.
Side-by-Side: Simplified vs Regular Method
| Factor | Simplified Method | Regular Method |
|---|---|---|
| Max deduction | $1,500 | No cap |
| Record-keeping | Minimal | Must track all home expenses |
| Depreciation | Not allowed | Required (recaptured on sale) |
| Best for | Small offices, simple situations | Larger offices, high home costs |
| Can carry forward losses? | No | Yes |
| Time to calculate | 5 minutes | 1-2 hours |
Common Mistakes That Trigger Audits
- •Claiming a space that isn't exclusive: If your "office" is the kitchen table where your family also eats dinner, it doesn't qualify. The space must be used only for business.
- •Deducting more than your business income: The home office deduction cannot create a business loss under the regular method. If your business nets $3,000 and your home office deduction calculates to $4,000, you can only deduct $3,000 (the excess carries forward to next year).
- •Not keeping adequate records: Save utility bills, mortgage statements, insurance declarations, and repair receipts. Take a photo of your office space. Keep a simple log if you also use the space for storage.
- •Claiming an unreasonable percentage: Claiming that 50% of your 3,000 sq ft home is used for business will raise red flags. Be honest and accurate about your office dimensions.
- •Forgetting about depreciation recapture: If you use the regular method and claim depreciation on your home, you'll owe depreciation recapture tax when you sell. This catches many people off guard — plan for it.
Maximizing Your Home Office Deduction
- •Designate a dedicated space: Even a closet converted into an office counts, as long as it's used exclusively for business. The larger the dedicated space, the bigger the deduction.
- •Run the numbers both ways: Calculate your deduction using both the simplified and regular methods every year. The winner may change as your home expenses fluctuate.
- •Track expenses throughout the year: Don't wait until tax time to gather receipts. Use a spreadsheet or app to log home expenses monthly — it takes 5 minutes and saves hours of stress.
- •Include all eligible expenses: Homeowners often forget about pest control, HOA fees, security systems, and general home maintenance. If it maintains or improves your home, a portion is deductible.
- •Consider improvements to your office space: Direct improvements to your home office (new flooring, built-in shelving, better lighting) are 100% deductible as business expenses — not subject to the business-use percentage.
Pro Tip: Internet and Phone
Your internet bill is deductible based on business-use percentage under the regular method. If you use a separate phone line or a dedicated business cell phone, that cost is 100% deductible as a business expense — not a home office expense. Don't double-count it, but don't miss it either.
Is the Home Office Deduction Worth the Risk?
Many self-employed taxpayers skip the home office deduction out of fear it will trigger an audit. While it's true this deduction receives IRS scrutiny, the risk is manageable if you follow the rules and keep good records. The IRS isn't looking to penalize legitimate home offices — they're looking for people who claim their entire home as a business expense or who don't actually work from home.
If you genuinely work from a dedicated space in your home, you're entitled to this deduction. Skipping it out of fear means overpaying your taxes every year. A CPA can help you claim it correctly, keep the right documentation, and ensure you're maximizing the deduction without crossing any lines.