Home Office Deduction: Rules, Methods, and Recordkeeping

If you’re self-employed and use part of your home for your business, the home office deduction lets you write off a share of your housing costs against your business income. It’s available to sole proprietors, independent contractors, single-member LLC owners, partners, and farmers, and it works for renters as well as homeowners. W-2 employees can’t take it, no matter how much they work from home.¹

Who Can Claim It

If you report business income on Schedule C or Schedule F, you’re in the pool of people who can claim this deduction, provided your space passes the use tests below. Partners can claim it too, using worksheets rather than the standard form.¹

Employees are out. The Tax Cuts and Jobs Act suspended the deduction for unreimbursed employee business expenses starting in 2018, and the One Big Beautiful Bill Act, signed in July 2025, permanently eliminated miscellaneous itemized deductions. The employee version of this deduction is not coming back.²

Does Your Space Qualify?

Exclusive and Regular Use

The area you claim has to be used only for your business, and used consistently. A spare bedroom that’s an office on weekdays and a guest room on weekends fails the test. The space doesn’t have to be a whole room with a door: an identifiable portion of a room can qualify, as long as nothing personal happens in that portion. Occasional business use won’t do either. Regular means routine, ongoing use as part of how you run the business.³

Principal Place of Business

Your home office also needs to be your main place of business. The easiest way to meet this: you handle the administrative and management side of the business at home (billing, bookkeeping, scheduling, ordering) and you don’t have another fixed location where you regularly do that work. A separate work site where you see customers is fine, so long as the back-office work happens at home.³

Alternatively, if you regularly meet clients, patients, or customers in your home office, that alone satisfies the principal-place requirement.³

Separate Structures Get an Easier Test

A detached garage, studio, barn, or workshop on your property qualifies under a looser standard. It only needs to be used exclusively and regularly in connection with your business. It doesn’t have to be your principal place of business, and you don’t need to meet clients there.³

Two Exceptions to Exclusive Use

If you sell products and store inventory or product samples at home, you can deduct the expenses tied to the storage space even when the space is also used personally. Two conditions apply: your home has to be the only fixed location of the business, and the storage space needs to be an identifiable area you use regularly for that purpose.³

The second exception is for licensed daycare providers caring for children, adults 65 or older, or people who can’t care for themselves. You must have applied for, received, or be exempt from a state daycare license. Because the space also gets personal use, your deduction is scaled down by a time-space percentage rather than a straight square-footage percentage.⁴

How Much Can You Deduct?

You choose between two methods each year.

The Simplified Method

Deduct $5 for every square foot of qualifying business space, up to 300 square feet. That caps the annual deduction at $1,500. There’s no tracking of utility bills, no depreciation, and no Form 8829. If you itemize, you still claim your full mortgage interest and property tax on Schedule A.⁵

The catch: for anyone with a larger office or meaningful housing costs, $1,500 leaves money on the table. And if the gross income cap (below) limits what you can deduct in a given year, the excess is gone. There’s no carryforward under the simplified method.⁵

The Actual Expense Method

Figure out what percentage of your home’s square footage is the office. Apply that percentage to your indirect expenses: utilities, homeowners or renters insurance, general repairs, and either rent or (for owners) mortgage interest, property taxes, and depreciation. An office that occupies 200 square feet of a 2,000-square-foot home gives you a 10% business percentage.⁴

Direct expenses (costs that only benefit the office, like painting that room) are fully deductible without applying the percentage.⁴

For homeowners, depreciating the business share of the home usually makes this method significantly more valuable than the simplified $1,500. Read the recapture section before you decide, though, because depreciation has a tail.

You can switch between methods from year to year.⁶

The Gross Income Cap

Your home office deduction can’t exceed the gross income from that business minus your other business expenses. It can reduce your business income to zero, but it can’t push you into a loss. If your side business grosses $3,000 and you already have $2,800 of other business expenses, the deduction is capped at $200 that year regardless of what the calculation would otherwise produce.⁵

Under the actual expense method, the disallowed amount carries forward to future years and remains subject to the same cap. Under the simplified method, it doesn’t.¹

Where It Goes on Your Return

Sole proprietors and single-member LLCs using actual expenses file Form 8829. It walks through direct expenses, indirect expenses, depreciation, and the income cap, and the resulting deduction lands on line 30 of Schedule C.⁶

With the simplified method, skip Form 8829 and put the deduction straight on Schedule C.⁷

Farmers on Schedule F and partners don’t use Form 8829. They calculate the deduction with the worksheets in IRS Publication 587.⁸

Whichever method you use, the deduction lowers your net self-employment income, which cuts both income tax and self-employment tax.

Records the IRS Expects

This deduction draws attention, so keep documentation that shows what you claimed and why:

A diagram of your home with measurements identifying the office area, plus photos showing it set up for business.
A log or calendar showing regular business use, especially useful if the business is part-time.
Utility bills, insurance statements, rent receipts, mortgage interest statements, and receipts for repairs or improvements.
Your home’s cost basis: purchase price, closing costs, and records of improvements over the years.

Keep general records for at least three years from the date you filed or two years from when you paid the tax, whichever is later. Keep depreciation records for as long as you own the home, plus three years after you file for the year you sell it.⁴

Depreciation Recapture When You Sell

If you used the actual expense method and depreciated the business portion of your home, selling the property triggers depreciation recapture. The IRS taxes the depreciation you claimed (or were allowed to claim, whether or not you actually did) after May 6, 1997 as unrecaptured Section 1250 gain, at a rate up to 25%. That applies even if the rest of your sale gain is covered by the primary residence exclusion.⁹

The Section 121 exclusion — up to $250,000 of gain for single filers or $500,000 for joint filers — still covers the rest of the profit if the office is inside the main house; you don’t have to split the sale between business and personal portions. A detached structure used as an office is different: the gain attributable to that separate structure requires allocation and may not qualify for the exclusion.¹⁰

Use the simplified method instead, and depreciation is treated as zero, so your home’s basis isn’t reduced and there’s no recapture on the years you used that method. That’s part of why the simplified method can be the smarter pick for homeowners planning to sell within a few years, even though the annual deduction is smaller.¹⁰

1
Internal Revenue Service. Topic No. 509, Business Use of Home
2
Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026)
3
Office of the Law Revision Counsel. 26 USC 280A
4
Internal Revenue Service. Publication 587 (2025), Business Use of Your Home
5
Internal Revenue Service. Simplified Option for Home Office Deduction
6
Internal Revenue Service. Instructions for Form 8829 (2025)
7
Internal Revenue Service. Instructions for Schedule C (Form 1040) (2025)
8
Internal Revenue Service. Instructions for Schedule F (Form 1040) (2025)
9
Office of the Law Revision Counsel. 26 USC 121
10
Internal Revenue Service. Depreciation and Recapture 3