Can I Deduct Part of My Mortgage for a Home Office?

If you’re self-employed and use part of your home exclusively and regularly for business, the home office mortgage deduction lets you write off the business-use share of your mortgage interest, along with a proportional share of property taxes, insurance, utilities, and depreciation. Renters get the same treatment for rent. One important limit at the outset: only the interest portion of your mortgage payment counts. Principal payments build equity and are never deductible.

Interest Yes, Principal No

Your monthly mortgage payment has two parts. The interest is a cost of borrowing, and a share of it becomes a business expense when part of the home is used for business. The principal reduces what you owe the lender and adds to your equity, so the tax code treats it as a transfer of your own money from one place to another rather than an expense.

Your lender reports the interest you paid on Form 1098, which they must send if you paid $600 or more during the year.¹ That total is your starting point. You then apply your business-use percentage to figure the deductible share.

Who Qualifies

Two tests decide whether the space counts. You must use it exclusively for business, meaning it can’t double as a guest room, a play area, or personal living space. And you must use it regularly, on an ongoing basis rather than for the occasional project.²

The space also has to be your principal place of business. You meet that requirement if you handle administrative or management tasks there and have no other fixed location where you do that work. You also qualify if you regularly meet clients, patients, or customers at home.²

The IRS defines “home” broadly. A house, apartment, condo, mobile home, or boat with basic living facilities all count. A separate structure on your property, like a detached garage converted into a studio, can qualify too if you use it exclusively and regularly for business.³

W-2 Employees Cannot Claim This Deduction

The Tax Cuts and Jobs Act suspended the home office deduction for W-2 employees for tax years 2018 through 2025. The suspension was scheduled to expire after 2025, which could restore the deduction for employees starting with the 2026 tax year if Congress does not extend the current rules. If restored, employees would claim these costs as a miscellaneous itemized deduction subject to a 2 percent of adjusted gross income floor. Check the IRS site for the current status before filing. Working from home for an employer during the suspension period does not qualify you, even if you have a dedicated office.

How Much of Your Mortgage Interest Is Deductible

Under the regular method, you calculate the business-use percentage of your home. Measure the office square footage and divide it by the total square footage of the home. That percentage is what you apply to indirect expenses that benefit the whole house: mortgage interest, property taxes, homeowners insurance, utilities, and general repairs.³

Direct expenses, meaning costs that benefit only the office (repainting the office, adding shelving in that room), are deducted in full rather than prorated.

The regular method also allows a yearly depreciation deduction. The business portion of the home’s structure is depreciated over 39 years as nonresidential real property.⁴ Depreciation increases your annual deduction but has a cost at sale, discussed below.

One overall cap applies: your total home-office deduction cannot exceed the gross income from the business use of the home. Anything disallowed under that cap carries forward to the next year.⁵

The Simpler Alternative

Rather than tracking actual expenses, you can use the simplified method. It gives you $5 per square foot of office space, up to 300 square feet, for a maximum deduction of $1,500.⁶

Under this method you don’t separately deduct a share of mortgage interest, taxes, utilities, or depreciation through the home office calculation. But the trade-off has an upside: your full mortgage interest and property taxes remain available as ordinary itemized deductions on Schedule A, not reduced by any business-use split. And because the simplified method treats depreciation as zero, you avoid the recapture tax when you sell.⁶

You can switch methods from year to year, but you can only use one method per home in any given tax year. The regular method usually produces a larger deduction if your actual costs are high or your office is bigger than 300 square feet. The simplified method saves you record-keeping and protects you from depreciation recapture at sale.

The Catch When You Sell the Home

The federal home-sale exclusion lets you exclude up to $250,000 of profit from the sale of your home ($500,000 if you’re married filing jointly), provided you lived there for at least two of the five years before the sale. If your office was inside the home rather than in a separate structure, the full profit still qualifies for that exclusion.⁷

There is one exception. Any depreciation you claimed, or were entitled to claim, after May 6, 1997 cannot be excluded. That amount is taxed as unrecaptured Section 1250 gain at a maximum rate of 25 percent, or your regular income tax rate if that’s lower.⁷ If you claimed $8,000 of depreciation across several years and later sold at a profit, that $8,000 gets taxed at up to 25 percent even if the rest of the gain is fully excluded.

The phrase “entitled to claim” matters. Under the regular method you generally must take depreciation, and the IRS treats you as having taken it whether you actually did or not. This is why some self-employed people with modest home offices choose the simplified method: the deduction is smaller, but there’s no depreciation to recapture later.

How to File It

Under the regular method, you complete Form 8829. It walks through your home’s expenses, calculates the business-use percentage, and figures depreciation. The resulting deduction flows to Schedule C of Form 1040, where it reduces your business income.⁸

Under the simplified method, you skip Form 8829. You enter the square footage of the office and the home directly on Schedule C.⁹

If the income cap disallows part of your deduction one year, the excess isn’t lost. It carries forward to next year’s Form 8829, with operating expenses on Line 25 and excess depreciation on Line 31. The carryover stays subject to the income limit in the new year, and it follows you even if you move.⁸

A separate rule shuts the door on hobby activities. The deduction only applies to work you carry on with an intent to earn a profit. If the IRS classifies your activity as a hobby, you cannot use it to claim a home office deduction.¹⁰

Records to Keep

Documentation protects the deduction if your return is examined. At a minimum, keep:

A floor plan or measurements showing the office and total home square footage, supporting your business-use percentage.
Form 1098 from your lender, showing mortgage interest paid for the year.¹¹
Bills and year-end statements for property taxes, insurance, utilities, repairs, and any improvements to the office.¹²
Dated photos of the workspace to show it’s set up exclusively for business.
A calendar or log of days worked in the office to support regular use, especially if your schedule varies.

Keep these records for at least three years after filing, the standard IRS audit window. If you claim depreciation, hold on to the records for as long as you own the home and for three years after filing the return for the year you sell it, since recapture surfaces at that point.

1
Internal Revenue Service. About Form 1098, Mortgage Interest Statement
2
Internal Revenue Service. Publication 587 (2024), Business Use of Your Home
3
Internal Revenue Service. How Small Business Owners Can Deduct Their Home Office From Their Taxes
4
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
5
Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc.
6
Internal Revenue Service. Simplified Option for Home Office Deduction
7
Internal Revenue Service. Publication 523 (2024), Selling Your Home
8
Internal Revenue Service. Instructions for Form 8829 (2025)
9
Internal Revenue Service. Topic No. 509, Business Use of Home
10
Internal Revenue Service. Know the Difference Between a Hobby and a Business
11
Internal Revenue Service. Instructions for Form 1098 (12/2026)
12
Internal Revenue Service. Audits Records Request