Overview

Working from home can create real business expenses — a dedicated office, extra internet usage, equipment upgrades, and a share of utilities. For self-employed taxpayers those expenses may be deductible; for most employees, the Tax Cuts and Jobs Act suspended miscellaneous unreimbursed employee expense deductions through tax year 2025, so they generally can’t claim home office deductions on individual tax returns (exceptions exist for certain categories such as qualified performing artists and some government officials) (IRS, Pub. 587).

In my 15+ years advising clients, the difference between a clean, well-documented deduction and an audit headache usually comes down to two things: meeting the IRS tests (regular and exclusive use; principal place of business) and good recordkeeping.

Who is eligible?

  • Self-employed taxpayers (sole proprietors, single-member LLCs reporting on Schedule C) can claim a home office deduction if they meet the IRS tests. They calculate the deduction using either the simplified method or the regular method (Form 8829 is used with the regular method) (IRS, Home Office Deduction).
  • Partners and S corporation owners have special rules; partners generally cannot deduct a home office on Schedule K-1, but a partner’s activity may be eligible under other circumstances — consult a tax professional.
  • Employees generally cannot claim unreimbursed home office expenses on Form 1040 for tax years 2018–2025, due to TCJA suspension of miscellaneous itemized deductions (with narrow exceptions listed by the IRS) (IRS, Pub. 529 and Pub. 587).

Key IRS qualification tests

  • Regular and exclusive use: The space must be used regularly and exclusively for business. Occasional or incidental business use of a shared space does not qualify (IRS Pub. 587).
  • Principal place of business: Your home office must be your principal place of business, or you must use the space for administrative or management tasks and have no other fixed location where you conduct substantial administrative tasks.
  • Exceptions: Certain storage of inventory or collection of rent, and daycare providers operating a daycare business from home, have different or adapted standards. Review IRS Pub. 587 for specifics.

What expenses qualify?

Direct expenses (entirely for the home office)

  • Examples: painting or repairs in the office, furniture purchased solely for that office. These are fully deductible under the regular method (Schedule C/Form 8829).

Indirect expenses (home-wide costs allocated by percentage)

  • Examples: mortgage interest, rent, utilities, homeowner’s insurance, homeowners’ association fees, general repairs, and depreciation on the home. These are deductible only in the percentage that equals the business-use portion of the home.

Other business expenses related to home work

  • Office supplies, business software subscriptions, business portions of phone or internet bills (allocate reasonable business portion), and business equipment (computers, printers). These can often be deducted separately on Schedule C regardless of the home office percentage, but allocation rules apply for mixed-use items.

Simplified vs regular method (how to calculate)

Simplified method

  • Flat rate of $5 per square foot, up to 300 square feet (maximum deduction $1,500). No depreciation allowed with this method and recordkeeping is streamlined. You still must meet the regular-and-exclusive use requirement.

Regular method

  • Calculate actual expenses, separate direct and indirect costs, and apply the business-use percentage (office square footage ÷ total home square footage). This method can yield larger deductions when you have high actual costs or depreciation, but it requires more documentation and typically requires Form 8829 for Schedule C filers.

Practical example (simplified vs regular)

  • Home size: 1,500 sq ft; office: 150 sq ft (10% business use).
  • Annual rent: $24,000; utilities + insurance: $4,800; direct office repair $300.

Simplified method: 150 sq ft × $5 = $750 deduction.
Regular method: 10% of rent ($2,400) + 10% of utilities/insurance ($480) + direct $300 = $3,180 deduction. If you can claim depreciation under the regular method, the deduction may increase further.

Forms and reporting

  • Self-employed: Report home office deductions on Schedule C; use Form 8829 to calculate and support the deduction when using the regular method (IRS Form 8829 instructions; IRS Pub. 587).
  • Employees: Generally cannot report the home office deduction on Form 1040 for the years 2018–2025. If your employer reimburses you under an accountable plan, those reimbursements are not taxable and you won’t claim them on your return.

Depreciation and selling your home

  • If you use the regular method and claim depreciation on part of your home, you reduce your basis in the home. When you sell, depreciation claimed for the business portion may be subject to depreciation recapture rules (can increase taxable gain). Consult IRS guidance on depreciation recapture when you plan to sell (IRS Pub. 523 and Pub. 587).

Recordkeeping best practices

  • Measure and document: Keep a sketch or photo of the office with dimensions; calculate the business-use percentage and keep the math.
  • Save receipts: Keep receipts for furniture, repairs, remodels, software, and monthly bills showing business use. For mixed-use items (like internet), keep a business-use log or a reasonable allocation method.
  • Track time: If a space is used for both business and personal purposes at different times (rare for exclusive-use claims), keep logs that demonstrate exclusive business use when claimed.
  • Keep contemporaneous records — the IRS favors documentation created at the time of the expense over reconstructed records.

Common mistakes and audit triggers

  • Claiming non-exclusive space: Using a dining table occasionally for work doesn’t meet the exclusive-use test.
  • Over-allocating business use: Inflating square footage or the business portion of shared services (internet, utilities) without solid documentation.
  • Failing to account for depreciation recapture when selling the home after claiming depreciation.

State tax differences

  • States can treat home office deductions differently. Some states conform to federal rules; others have adjustments. Always check state instructions or consult a state tax pro.

Special situations

  • Multiple businesses at home: You must allocate space and expenses by business activity; conflicting claims between partnerships, S corps and the homeowner can be complex.
  • HOA and rental properties: If you work in a part of a rental structure, or if your HOA charges special fees or assessments, treat those costs as you would other indirect expenses and allocate appropriately.

Practical tips I use with clients

  • Use the simplified method for smaller offices or low-cost years to avoid complexity.
  • Use the regular method when you have significant expenses or will claim depreciation — but only if you maintain the records to support it.
  • If you’re an employee, ask your employer about accountable reimbursement plans; employer-paid reimbursement avoids the tax quiz on your return.
  • Keep a home office file (digital & physical) with measurements, receipts, and a one-page calculation each year.

Further reading and resources

Internal resources

Common questions answered briefly

  • Can I deduct my whole home? No — only the portion used regularly and exclusively for business, or under special storage/daycare exceptions.
  • Do I need a separate room? Not necessarily; a clearly defined area that meets exclusive-use requirements is acceptable.
  • Will claiming the deduction increase audit risk? Any unusual or large deduction without robust records may attract scrutiny; accurate records and consistent methods reduce risk.

Professional disclaimer

This article is educational and does not replace personalized tax advice. Rules change and state treatment varies; consult a certified tax professional or the IRS publications referenced here for advice specific to your situation.