Home Office Deduction

If you run a business from home, you may be able to deduct part of your housing costs. The home office deduction is real, but it comes with strict tests, and it is one of the items the IRS asks about when a self-employed return is reviewed. This guide explains who qualifies, the two ways to calculate it for 2025 returns, and what to watch for.

Who qualifies

You must meet two usage tests and one location test.

Regular use. You use the space for business on a regular basis. Incidental or occasional use does not count.

Exclusive use. You use that part of the home only for business. A desk in a corner of a living room that is also used for family activities usually fails. There are two exceptions: space used to store inventory or product samples, and certain daycare facilities.

Location. The space must fall into one of these categories:

• Principal place of business. This includes a space used for administrative or management work, as long as you have no other fixed location where you do substantial administrative or management work.
• Place to meet clients, patients or customers. The meetings must be in person on your premises, and the use must be substantial and integral to the business.
• Separate structure. A detached garage, studio or greenhouse used exclusively and regularly for the business qualifies even if it is not your principal place of business.

Employees generally cannot take this deduction. The deduction for unreimbursed employee expenses was eliminated for tax years beginning after 2017. If you are an S corporation owner who is also an employee, the company can reimburse home office costs under an accountable plan.

Two ways to calculate it

Simplified method

Multiply $5 by the square footage of the space, up to 300 square feet. You do not deduct actual home expenses or depreciation for that space. Mortgage interest and real estate taxes remain personal expenses, so you can still claim them on Schedule A if you itemize. You elect the method each year on a timely filed original return, and the choice is irrevocable for that year. The deduction cannot exceed the gross income from the business use of the home, less business expenses unrelated to the home.

Regular method

Figure the business percentage by square footage, or by the number of rooms if they are about equal in size. Then apply it to indirect expenses for the whole home, such as utilities, insurance, repairs and rent. Direct expenses for the office space only, such as painting that room, are fully deductible. If you own the home, depreciation is part of the deduction.

• Homes first used for business in 2025 are depreciated as nonresidential real property over 39 years, straight line.
• Report the calculation on Form 8829 for each home. Do not use Form 8829 for a year you elect the simplified method.
• The deduction is limited to the income from the business use of the home, after the business share of mortgage interest and real estate taxes and other business expenses. Disallowed amounts can carry over to a later year.

Selling the home later

Claiming depreciation can affect the home sale exclusion. The depreciation you claimed on the office is generally not covered by the exclusion and is taxed when you sell. Using the simplified method avoids depreciation for the years it is used. For the basics of the exclusion itself, see our guide on the home sale exclusion.

Common mistakes

• Using a guest bedroom or dining table that is also used personally.
• Counting space for a home office when your actual work happens at another fixed location.
• Claiming the simplified method for the deduction but also deducting actual utilities.
• Overlooking the gross income limit when the business shows little profit.
• Failing to keep photos, measurements and bills that show how the space was used.

Remote work and 2026 planning

Working from home does not by itself create a deduction for a W-2 employee. If you are self-employed, the rules above continue to apply for 2026 planning, and recent legislation did not change the basic tests. If you plan to move or buy a home, tell your tax professional first, since home office use affects basis, depreciation and the sale.

How we can help

We can review whether your workspace meets the tests, compare the simplified and regular methods for your situation, prepare Form 8829 and keep a depreciation schedule for the home. Learn more about our business tax preparation services, or contact us.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.