The US Home Office Deduction: Simplified vs Regular Method

Millions of Americans work from home, but not all of them can deduct a home office. The deduction is available to self-employed people — sole proprietors, freelancers, independent contractors and single-member LLC owners filing Schedule C. Since 2018, employees who receive a W-2 generally cannot claim it on their federal return, even if their employer requires them to work remotely.

The key qualification is regular and exclusive use. The space must be used for your business on a consistent basis, and it must be used only for business. A spare room set up as a studio qualifies; a dining table where you work during the day and eat dinner at night does not. The space does not have to be a full room — a clearly separated corner can work — but the exclusive-use rule applies to that area.

The office must also be your principal place of business, or a place where you regularly meet clients, or a separate structure such as a detached garage studio. If you do most of your administrative and management work there and have no other fixed location for that work, it usually counts as your principal place of business even if you do client work elsewhere.

You can calculate the deduction in two ways. The simplified method allows $5 per square foot of qualifying space, up to 300 square feet, for a maximum of $1,500. There is no depreciation to track and very little paperwork. It suits people with small offices or those who rent, and it is easy to defend because the calculation is so simple.

The regular method uses actual expenses. You work out the business percentage of your home — office square footage divided by total square footage — and apply it to rent or mortgage interest, property tax, insurance, utilities, repairs and, for owners, depreciation. A 200-square-foot office in a 2,000-square-foot home gives a 10% business share. This method often produces a larger deduction, especially in high-cost areas, but it needs receipts and Form 8829.

There are limits. The deduction cannot exceed the net profit from the business that uses the office, although unused amounts under the regular method can be carried forward. Homeowners who claim depreciation should also know it may be recaptured and taxed when they sell the home.

Good records make the deduction safe. Keep a simple floor plan with measurements, photographs of the workspace, and a folder of the bills you used. If you switch methods from year to year — which is allowed — note which method you used each year.

This guide summarises IRS Publication 587. Use our US tax calculator to see how a lower net profit changes both your income tax and self-employment tax.