Claiming the Home Office Deduction: Rules and Documentation

Overview

The home office deduction reduces taxable income for taxpayers who use part of their home for business. It’s most commonly used by self-employed individuals, sole proprietors, and small business owners who file Schedule C. Employees cannot generally claim this deduction for unreimbursed expenses after the Tax Cuts and Jobs Act (TCJA) suspension of miscellaneous itemized deductions for tax years 2018–2025, except for a few narrow categories (e.g., certain qualified performing artists, fee-basis state or local government officials, and reservists) (IRS, Publication 587: https://www.irs.gov/pub/irs-pdf/p587.pdf).

Two claim methods

• Simplified method: $5 per square foot of qualified business space, up to 300 square feet (maximum deduction $1,500). No depreciation for the home is claimed under this method. (IRS home office page: https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction)

• Regular (actual-expense) method: Deduct a portion of actual home expenses (direct and indirect) based on the business-use percentage. Report this on Form 8829 when you file Schedule C. Depreciation on the business portion of your home may be claimed under this method, which affects basis and can require recapture on sale. (See Form 8829: https://www.irs.gov/forms-pubs/about-form-8829)

Key qualification tests (current as of 2025)

1. Exclusive use: The space must be used exclusively and regularly for your trade or business. A spare room used solely as an office qualifies, but a desk in a family room that doubles as TV space does not.

2. Regular use: Use must be ongoing and consistent. Occasional or incidental business activity does not meet this test.

3. Principal place of business or business meetings: The space must be your principal place of business — or a place where you meet clients, customers, or patients in the normal course of business. If you perform substantial administrative or management tasks at home and have no other fixed location for those tasks, your home can qualify as your principal place of business.

4. Special rules for storage and day-care: Exception exist for storage of inventory or product samples and for certain day-care businesses; those have specific rules in Publication 587.

Documentation you must preserve

Good records reduce audit risk and make method selection defensible. Maintain these items for at least three years (IRS audit window) and longer if you claim depreciation (records supporting basis should be kept until the statute of limitations expires after the property is sold):

• Floor plan and measurements showing the square footage of the home and the business area, or the count of rooms when rooms are roughly equal size.
• Date you started using the space for business and any changes in use.
• Photographs of the dedicated workspace (showing exclusive business use).
• Receipts, canceled checks, or bank/credit card statements for mortgage interest, rent, utilities, insurance, repairs, and improvements.
• Property tax statements and mortgage interest (Form 1098) if applicable.
• Records of depreciation claimed: worksheet or ledger showing depreciation method and annual depreciation amounts (if you use the regular method).
• A contemporaneous log of client visits or business meetings held at the home office (if the business use is meeting clients).
• For simplified method: measurement documentation and a copy of the simplified calculation; you still should keep evidence that the space met the exclusive and regular use tests.

How to calculate the business-use percentage

• Square-footage method (most common): Business area sq. ft. ÷ total finished home sq. ft. Example: 200 sq. ft. office ÷ 1,800 sq. ft. home = 11.11% business use.
• Room-count method (only when rooms are roughly equal in size): Number of rooms used for business ÷ total rooms.

What expenses are deductible under the regular method

Direct expenses (100% deductible for the business space):

• Painting, repairs, or improvements that apply only to the office.

Indirect expenses (deductible pro rata based on business-use percentage):

• Mortgage interest and property taxes (affect Schedule A and Schedule C interactions — see below)
• Rent (for renters)
• Utilities and homeowners insurance
• Homeowners association fees
• General repairs and maintenance
• Depreciation on the business portion of the home (reported on Form 8829 and later on Schedule C)

Note on mortgage interest and real estate taxes: These are often reported on Schedule A as itemized deductions. When using the regular method for a home office, you generally still report mortgage interest and taxes on Schedule A; the portion attributable to business use may also be reported on Form 8829 to avoid double-counting. Follow Form 8829 instructions and Publication 587 for correct interplay.

Depreciation and sale of the home

If you use the regular method and claim depreciation for the business portion, you reduce the adjusted basis of the property. When you sell the home, depreciation claimed (or allowable) for the business part must be “recaptured” — reported as income to the extent required by the tax code — which can limit the gain that qualifies for the home-sale exclusion under Internal Revenue Code Section 121. This is an important tax consequence; I’ve seen clients who correctly claimed depreciation but were surprised by the recapture and its effect on the exclusion when they later sold the house. Consult a tax advisor before choosing the regular method if you anticipate selling your home at a gain (IRS Pub 523 and Pub 587).

Employees vs. self-employed

• Self-employed taxpayers (Schedule C filers): Eligible to use either method. Use Form 8829 if using the regular method; for the simplified method, complete the simplified calculation and enter the deduction on Schedule C.
• Employees: For tax years through at least 2025, unreimbursed employee business expenses, including a home office deduction for employees, are disallowed under the TCJA for most employees. Only certain categories of employees (e.g., performing artists who meet qualifications, fee-basis state or local government officials, and certain reservists) can still deduct such expenses. (IRS Publication 529 and Publication 587)

Selecting the best method: practical tips

• Try both methods for the tax year before you file. I recommend building a simple spreadsheet comparing the simplified deduction to the regular method result using your actual expenses. Because the simplified method removes depreciation from the calculation, it can be better short-term, but the regular method may yield greater benefit over time.
• If you expect large repairs or a high business-use percentage, the regular method often pays off.
• If you plan to sell your home and the sale may produce a significant gain, factor depreciation recapture into your decision.

Common audit triggers and how to avoid them

• No records showing exclusive use: Keep dated photos, floor plans, and a written statement of exclusive use.
• Large deductions without proportionate business size: The IRS expects business expenses to scale with business activity. Preserve evidence of time spent working at the location (logs, calendars) and client appointments.
• Reclassifying personal rooms as business areas after the fact: Document the conversion date and supporting purchases (office furniture, repairs).

Quick documentation checklist (ready to print and keep with records)

• [ ] Floor plan and measurement or room-count calc
• [ ] Photos of workspace showing exclusive use
• [ ] Lease agreement or mortgage statements (Form 1098)
• [ ] Utility bills and homeowners insurance statements
• [ ] Receipts for direct expenses (repairs, painting, furniture)
• [ ] Depreciation worksheet (if using regular method)
• [ ] Business logs or calendars showing regular use and client visits

Further reading and internal resources

For deeper guidance and examples published on FinHelp, see:

• Home Office Deduction: Simplified vs Regular Method Explained (internal): https://finhelp.io/glossary/home-office-deduction-simplified-vs-regular-method-explained/
• Documenting Home Office Expenses Under Current Rules (internal): https://finhelp.io/glossary/documenting-home-office-expenses-under-current-rules/
• What the IRS Looks for in Small-Scale Home Office Audits (internal): https://finhelp.io/glossary/what-the-irs-looks-for-in-small-scale-home-office-audits/

Authoritative sources

• IRS — Home Office Deduction overview: https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction
• IRS Publication 587, Business Use of Your Home: https://www.irs.gov/pub/irs-pdf/p587.pdf
• IRS — About Form 8829, Expenses for Business Use of Your Home: https://www.irs.gov/forms-pubs/about-form-8829

Professional disclaimer

This article is educational and reflects current IRS guidance as of 2025. It is not tax advice for your specific situation. In my practice I’ve seen how small documentation gaps create large problems; consult a qualified tax professional before choosing a filing method or making significant tax elections.