Home Office Deduction
If part of your home is used regularly and exclusively for your business, a share of rent or mortgage interest, utilities, insurance, and depreciation becomes a business expense. The simplified method caps out at $1,500; the actual-cost method is often several times that, and for a self-employed owner each deducted dollar also saves self-employment tax.
Reviewed by Ebot Mbi, CPA, EA · Last reviewed October 9, 2026
Who it fits
- Sole proprietors and single-member LLC owners who run the business from home
- Owners whose home office is where they do the administrative and management work
- S-corporation owners, through an accountable plan reimbursement
- Renters, where the math is simplest and depreciation recapture does not apply
Who it's not for
- W-2 employees; unreimbursed employee expenses are not deductible under current law
- A space also used for family, guests, or personal activities
- Businesses showing a loss, where the deduction is limited and carried forward
How it works
Two tests apply. The space must be used regularly and exclusively for business, and it must be your principal place of business or a place where you meet clients. Administrative and management work counts if you have no other fixed location where you do it.
The simplified method is $5 per square foot for up to 300 square feet, a maximum of $1,500. There is no depreciation and no recapture, and your full mortgage interest and property taxes stay on Schedule A if you itemize.
The actual-cost method takes the business percentage of the home (office square feet divided by total square feet) times rent or mortgage interest, property tax, insurance, utilities, and repairs, plus depreciation on the business share of the building.
S-corporation owners are employees of their company, so they cannot claim the deduction on their personal return. Instead, the company reimburses the owner's business share of home costs under a written accountable plan. The company deducts it, and the reimbursement is not wages.
The deduction cannot create a loss. Any excess carries forward to a later year with business income.
Illustrative example
Illustrative: a self-employed consultant rents a 2,000-square-foot apartment and uses a 250-square-foot room only for the business. Annual rent is $42,000, utilities $3,600, and renter's insurance $400. Assume a 24% income tax bracket and earnings below the Social Security wage base.
- Business percentage: 250 ÷ 2,000 = 12.5%
- Total home costs: $42,000 + $3,600 + $400 = $46,000
- Actual-cost deduction: $46,000 × 12.5% = $5,750
- Simplified method for comparison: 250 × $5 = $1,250
- Approximate tax saved with actual costs: $5,750 × (24% + 14.13% self-employment tax) ≈ $2,190
The actual-cost method saves about $2,190 of federal tax, against about $480 under the simplified method.
The rules
| Rule | Citation |
|---|---|
| The space must be used regularly and exclusively as a principal place of business or to meet clients. | IRC §280A(c)(1) |
| The simplified method allows $5 per square foot for up to 300 square feet. | Rev. Proc. 2013-13 |
| The deduction is limited to the business's gross income less other expenses; any excess carries forward. | IRC §280A(c)(5) |
| Reimbursements under an accountable plan are excluded from the employee's wages. | IRC §62(c); Treas. Reg. §1.62-2 |
| Depreciation claimed on a home office is taxed on sale and is not covered by the home sale exclusion. | IRC §121(d)(6) |
Watch-outs
- Exclusive use is strict. A guest bed or children's homework in the room can disqualify it.
- Homeowners who use the actual method pay tax on depreciation recapture when the home is sold, at up to 25%.
- S-corporation owners who claim the deduction on Schedule C or Form 2106 instead of using an accountable plan lose it.
- Keep a floor plan with measurements and photos of the space.
What we do
We measure the numbers both ways, choose the method that keeps more cash, and set up the accountable plan and monthly reimbursement for S-corporation owners. We also track depreciation so the sale of your home is reported correctly.
Questions
I am a W-2 employee working from home. Can I deduct my office?
No. Unreimbursed employee expenses are not deductible under current federal law. Ask your employer about a reimbursement policy.
Can I switch between the simplified and actual methods?
Yes, you can choose each year. Depreciation calculations must be adjusted when you return to the actual method.
Does a home office increase audit risk?
A properly supported home office is a routine deduction. Keep measurements, photos, and expense records so the claim stands on its own.