For U.S. federal taxes, qualifying self-employed people may deduct eligible costs tied to business use of their home. First, the space must meet an IRS business-use test; then the taxpayer can choose between a simplified calculation and allocating actual expenses. The deduction is generally unavailable to employees claiming unreimbursed expenses.
Who can claim a home office deduction?
A typical home office must be used regularly and exclusively for business and qualify as the taxpayer’s principal place of business. A home area may also qualify when it is used regularly and exclusively to meet clients, customers, or patients in the normal course of business, even if it is not the principal place of business. IRS Publication 587 explains these and other qualifying uses.
- Separate structure: A separate, unattached structure used in connection with the business may qualify even if it is not the principal place of business or a place where clients meet.
- Inventory or product samples: Certain regular storage uses may qualify under specific rules.
- Daycare: Daycare use is subject to special requirements.
For an ordinary office, exclusive use means the area is not also used personally. Occasional meetings or business calls alone do not satisfy the test. The inventory and daycare provisions have special conditions, so their spaces should not be judged solely by the ordinary exclusive-use rule.
Which home office expenses are deductible?
Actual expenses under the regular method
With the regular method, taxpayers generally calculate the business-use share of eligible home expenses. Common costs include rent, utilities, insurance, maintenance, mortgage interest, real estate taxes, and depreciation, as applicable and subject to allocation and tax limits. Direct expenses that apply only to the office area may be treated differently from indirect expenses that apply to the whole home.
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Not every business cost belongs in the home-use calculation. Supplies, salaries, certain telephone costs, dues, and business-equipment depreciation are generally reported separately on the appropriate business schedule rather than treated as expenses for use of the home. A desk or computer purchase, for example, is not part of the square-foot allocation simply because it is in the office.
Simplified method
The IRS simplified method uses $5 per allowable square foot, for up to 300 square feet. That produces a maximum square-foot calculation of $1,500 before the business-income limit; it is not a guaranteed deduction. The prescribed amount replaces actual home-use expenses for that business use. A taxpayer using this method may still claim otherwise-deductible mortgage interest, property taxes, and casualty losses under personal rules when applicable, but not again as business expenses for the same home use. See the IRS simplified-method guidance.
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How do the two calculation methods compare?
| Feature | Simplified method | Regular method |
|---|---|---|
| Calculation | $5 per allowable square foot | Business-use share of eligible actual expenses |
| Area calculation | Up to 300 square feet | Percentage of the home used for business |
| Home depreciation | No home depreciation deduction for that year | May include business-use share of home depreciation |
| Mortgage interest and real estate taxes | If itemizing, generally claimed as personal itemized deductions without allocating a business share under this method | Allocated between personal and business treatment under applicable rules |
| Records and calculations | Less calculation work; qualification and supporting records still matter | Requires actual expense records, allocation support, and basis and depreciation records |
| Income limit and carryovers | Limited by business income after specified expenses; excess simplified amount is not carried forward | Same general income limit; certain disallowed expenses and eligible prior regular-method carryovers may be subject to later-year rules |
| Later home sale | No depreciation recapture for years using this method | Depreciation may affect gain and recapture treatment |
The simplified method reduces calculation burden; it does not relax the eligibility tests. Taxpayers choose a method separately for each tax year, but the election is made on a timely filed original federal return and cannot be changed for that same year after filing. A later switch from simplified to regular requires the applicable optional depreciation table. The IRS FAQ on the simplified method covers elections and related rules.
What limits the deduction?
The home-use deduction generally cannot exceed the gross income from the business use of the home after specified business expenses. If the calculation exceeds this limit, the deductible amount may be reduced. Under the regular method, certain disallowed expenses may be carried forward under IRS rules; excess simplified-method amounts are not carried forward. Prior regular-method loss carryovers are also subject to IRS rules when switching to simplified treatment.
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For federal tax years beginning after 2017, employees generally cannot deduct unreimbursed employee expenses, including home office costs. Using the simplified method does not create eligibility. IRS guidance says qualifying employee use—such as use as a main place of business or to meet customers—must also be for the employer’s convenience. A statutory employee whose Form W-2 has box 13 checked follows the self-employed Schedule C rules described by the IRS.
Where is the deduction reported?
A sole proprietor generally reports the home-use deduction on Schedule C. For the regular method, Form 8829 is used where applicable; Schedule C instructions include a simplified-method worksheet. Partners and farmers filing Schedule F use different worksheets and may face additional qualification details. The IRS provides the 2025 Instructions for Form 8829 for that tax year.
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What records should you keep?
Keep the documents that support the business-use calculation and actual expenses when using the regular method. The IRS specifically identifies records of when and how the home was acquired, the original purchase price, improvements, and depreciation allowed for business use as relevant to depreciable basis. Retaining Form 8829 or the applicable worksheet can also help document depreciation calculations.
This article covers U.S. federal rules reflected in IRS guidance for 2025 returns, available as of October 4, 2026. It does not establish whether a state follows the same treatment.
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