Plenty of people work from home, but far fewer can deduct a home office. The deduction is real and can be worth claiming, but it comes with strict tests, and choosing how to calculate it affects your taxes when you sell your home.
Here's who qualifies, what the IRS looks for, and how the two calculation methods compare.
First: are you self-employed?
The home office deduction is for people running a trade or business, such as sole proprietors, freelancers and independent contractors who file Schedule C. Partners and farmers can qualify too.
If you're a W-2 employee working from home, you generally can't deduct a home office on your federal return, even if your employer requires you to work remotely. Home office costs for employees fell under "miscellaneous itemized deductions," which the 2017 tax law suspended starting in 2018. That suspension was originally set to end after 2025. Following the One Big Beautiful Bill Act, current IRS instructions describe these deductions as eliminated for tax years beginning after 2017, with no end date. A few narrow groups of employees, such as Armed Forces reservists, qualified performing artists and fee-basis state or local government officials, can still deduct certain unreimbursed expenses.
If you're an employee, the better route is usually to ask your employer about reimbursement for home office costs.
Test 1: Regular and exclusive use
You must use a specific area of your home regularly and exclusively for your business. The space can be a room or another separately identifiable area, and it doesn't need to be marked off by a permanent partition. It just has to be used only for work.
The exclusive use rule is where many claims fail. A desk in the corner of the guest room can qualify if that corner is only used for business. A dining table where you also eat dinner doesn't. Occasional business use isn't enough either; the use must be regular.
There are two exceptions to the exclusive use test: space you use to store inventory or product samples (if your home is the only fixed location of a business that sells products), and space used for a qualifying daycare facility.
Test 2: Principal place of business
The space must also meet at least one of these:
- It's your principal place of business.
- It's a place where you regularly meet patients, clients or customers in the normal course of business.
- It's a separate, free-standing structure, such as a studio, garage or barn, used exclusively and regularly for your business.
Your home office can count as your principal place of business even if you do most of your work elsewhere. It qualifies if you use it exclusively and regularly for administrative or management activities, such as billing, scheduling and bookkeeping, and you have no other fixed location where you do substantial administrative or management work.
The IRS gives the example of a self-employed plumber who spends most of the day at customers' homes but uses a small home office only for phoning customers, ordering supplies and keeping the books. That office qualifies.
Two ways to figure the deduction
The simplified method
Multiply the square footage you use for business by $5, up to a maximum of 300 square feet. That caps the deduction at $1,500 a year. You don't track actual home expenses. Mortgage interest and real estate taxes are treated as personal expenses, which you may still be able to deduct if you itemize.
Say your office is 200 square feet. Your simplified deduction is 200 × $5 = $1,000.
The deduction can't be more than the gross income from the business use of your home minus your other business expenses.
The regular (actual expense) method
You figure the share of your home used for business, usually by square footage, and apply it to actual costs such as rent or mortgage interest, real estate taxes, insurance, utilities, repairs and depreciation. Self-employed people who file Schedule C use Form 8829.
Say your office is 240 square feet in a 1,200-square-foot home. That's 20% of the home, so you could deduct 20% of eligible indirect expenses, plus the full cost of expenses that apply only to the office, such as painting that room.
If you own your home, the regular method includes depreciation on the business part of the house. A home office is treated as nonresidential real property and is depreciated using the straight-line method over 39 years. Expenses over the income limit can generally be carried forward to the next year.
Which is better?
The simplified method is quicker and needs less record-keeping. The regular method often produces a bigger deduction if you have high housing costs or a large office. You can choose each year, and switching between methods from one year to the next is allowed.
What happens when you sell your home
When you sell your main home, you may be able to exclude up to $250,000 of gain ($500,000 for certain married couples filing jointly) if you meet the ownership and use tests. A home office inside your house usually doesn't change that, but depreciation does.
You can't exclude the part of your gain equal to depreciation that was allowed or allowable on the business part of your home after May 6, 1997. That portion is taxable, and it's generally taxed as unrecaptured section 1250 gain, at a maximum rate of 25%.
"Allowable" is the important word. If you were entitled to depreciation but didn't claim it, the IRS can still treat it as allowable. In a year you use the simplified method, though, the depreciation allowed for the office is treated as zero. That's one reason some homeowners prefer the simplified method.
Records to keep
- A floor plan or measurements of the office and your whole home
- Photos showing the space is set up for business use
- Utility bills, insurance, rent or mortgage statements, and repair receipts (for the regular method)
- Your home's purchase price, improvement costs and depreciation records
When it's worth getting help
A simple simplified-method claim is something many self-employed people handle on their own. Consider professional help if you own your home and are weighing the regular method, run more than one business from home, use part of the home for daycare or storage, or plan to sell a home where you've claimed depreciation. Our personal tax preparation team can compare both methods for you. If you work across state lines, our guide to remote work and state taxes may help too. You can book an appointment anytime.
This article is general information, not advice for your specific situation.
Sources
- IRS Publication 587, Business Use of Your Home
- IRS: Home office deduction
- IRS Publication 529, Miscellaneous Deductions
- IRS: Instructions for Form 2106
- IRS Topic No. 409, Capital gains and losses
General information, not tax advice. Tax rules change and depend on your situation. Figures are for tax year 2026 unless noted; confirm current amounts at IRS.gov or talk to a Stellar Tax professional before acting.