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The landscape · Self employed and owners

The home office deduction, simplified and regular

A self employed person who uses a space at home only for business can deduct a share of home costs, either by a flat rate per square foot or by the actual expenses of that share of the home.

Who this exists for. This exists for a self employed person who uses part of their home regularly and exclusively for business, and it is not available to employees working from home. Ticks that show it: I earn money on my own (freelance, gig, side work); I own a business with revenue; I own my home; I rent.

How it works

The space has to be used regularly and exclusively for business and be the principal place of business or a place to meet clients, with exceptions for storage and daycare. The simplified method multiplies the office area, up to 300 square feet, by this year's official home office simplified rate (not yet verified here; see the official source below) per square foot, with no depreciation and no records of home costs. The regular method takes the office share of the home, say a 150 square foot room in a home ten times that size, or 10 percent, and applies it to rent or mortgage interest, insurance, utilities, repairs, and depreciation on the home for an owner. The deduction cannot exceed the business's net income. Depreciation claimed under the regular method is taxed back at sale of the home as unrecaptured gain, even though the main home exclusion covers the rest.

What it gives

Renters can deduct a share of rent, which is otherwise not deductible at all.

The simplified method needs only a square foot measurement.

The regular method can be much larger for a high rent apartment or a big home.

What it costs, or where the catch is

A spare room that doubles as a guest room fails the exclusive use test.

Depreciation under the regular method comes back as taxable gain when the home is sold.

The deduction is capped at the business's profit, so a loss year yields nothing.

A worked example

Iris rents a $2,000 a month apartment of a thousand square feet and uses a 150 square foot room only for her bookkeeping business. Under the regular method her office share is 15 percent, so 15 percent of $24,000 of rent plus $1,800 of utilities, which is $25,800, gives a deduction of $3,870. Under the simplified method 150 square feet times the flat rate would come to a smaller figure, so the arithmetic favors the regular method for her.

Where it goes wrong

The common miss is claiming a corner of the living room that the family also uses, which fails the exclusive use test on audit.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS Publication 587, Business Use of Your Home. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.

Ask about The home office deduction, simplified and regular

A model reads this page and answers from it. It will say when the answer is not on the page. Education, not personalized advice.

Nearby doors

  • The commuter benefit

    This exists for a worker whose employer offers transit passes or parking paid from pay before tax.

  • The health savings account

    This applies when a person is covered by a qualifying high deductible health plan and has no other disqualifying coverage, which opens the door to a health savings account.

  • The traditional IRA and the deduction phase out

    This exists for anyone with earned income who opens an IRA on their own, and especially for a worker who also has a plan at work, since that changes whether the contribution is deductible.

  • The Roth IRA and its income phase out

    This exists for anyone with earned income below the Roth income lines who wants an account where qualified withdrawals come out tax free.

  • The backdoor Roth and the pro rata rule

    This exists for a person whose income is above the Roth IRA phase out and who has no pretax money in any traditional IRA.

  • The spousal IRA

    This exists for a married couple filing jointly where one spouse has little or no earned income and the other spouse earns enough to cover both contributions.

Education, not advice. Wealthy Habitat explains how rules work and never recommends what to do with your money. The No Advice Disclosure.