Documenting Home Office Expenses Under Current Rules

Introduction

Accurate documentation of home office expenses is the single most important step to claiming the home office deduction and surviving IRS review. The IRS allows two methods to compute the deduction — the simplified method (flat $5 per square foot, up to 300 sq ft) and the regular (actual‑expense) method — but both require clear records that connect business use to deductible amounts. See IRS guidance: “Home Office Deduction” and Pub. 587 (Business Use of Your Home) for official rules (irs.gov/businesses/small-businesses-self-employed/home-office-deduction; irs.gov/publications/p587).

Why documentation matters

• Verifies eligibility: proves the space is used “regularly and exclusively” for business.
• Supports the chosen calculation method: simplified method needs a measurement; regular method needs bills, receipts, and an allocation worksheet.
• Protects against audit adjustments or penalties by giving the IRS a clear trail.

A practical six-step documentation checklist

1) Define and measure your office space

• Record the room(s) or clearly delineated area you use exclusively for business. Take dated photos from multiple angles and keep them with your tax files.
• Measure the square footage and record the total home square footage. For the simplified method, you need only the office measurement; for the regular method, you’ll use the percentage (office sq ft ÷ total home sq ft).
• Save a simple sketch or floor plan that shows where the business space sits in the home.

2) Track direct vs. indirect expenses

• Direct expenses: costs that apply only to the office (painting the office, replacing a broken window in that room). Keep receipts with date, vendor, and description.
• Indirect expenses: costs for the whole home where you’ll allocate a business share (mortgage interest, rent, utilities, homeowner’s insurance, property taxes, general repairs). Save bills and bank statements.

3) Maintain contemporaneous receipts and statements

• Keep receipts, invoices, online payment confirmations, and bank/credit card statements. Record what each item was for and which portion (if any) is business related.
• For digital receipts, store PDFs in a dedicated folder and back them up. Accounting software (QuickBooks, Wave) or a simple spreadsheet can capture date, vendor, amount, and whether the expense is direct/indirect.

4) Use the correct tax forms and worksheets

• Self‑employed (Schedule C filers): use Form 8829 (Expenses for Business Use of Your Home) when using the regular method; report simplified method on Schedule C without Form 8829 (see IRS Form 8829 instructions) (irs.gov/forms-pubs/about-form-8829).
• If you operate as a corporation and commute rules change, consult your CPA. Note: most employees cannot claim a home office deduction for federal tax years 2018–2025 due to the TCJA suspension of miscellaneous itemized deductions; exceptions exist for certain employee categories (see IRS Pub. 529 & Pub. 587).

5) Keep mileage and equipment purchase records

• If you use a vehicle for business related to your home office, track mileage with date, purpose, and miles. Vehicle expenses are separate from home office expenses.
• For equipment (computers, printers, office furniture), keep invoices and note whether you used Section 179, bonus depreciation, or regular depreciation. Equipment placed in service for your business can be expensed or depreciated; keep records to support cost and business use percentage.

6) Retention timeline: how long to keep records

• Keep records that support your tax return for at least three years after the date you file the return, or two years after the date you pay the tax, whichever is later (IRS recordkeeping guidance) (irs.gov/businesses/small-businesses-self-employed/recordkeeping).
• For documents that affect property basis (depreciation on the business portion of your home), keep them until the period of limitations expires for the year in which you sell the home — often much longer — because depreciation reduces your home’s basis and can affect capital gains when you sell.

Choosing between the simplified and regular methods — documentation differences

Simplified method

• Documentation required: measurement and proof of exclusive use. Keep your measurement worksheet, photos/sketch, and a simple note of the months used during the tax year.
• No need to collect bills for utilities or depreciation paperwork for the home portion. However, keep purchase receipts for large items used in the office (computers, furniture) as those are separate business expenses.

Regular (actual expenses) method

• Documentation required: all receipts, canceled checks, invoices, mortgage interest statements (Form 1098), property tax records, utility bills, insurance invoices, and a worksheet showing allocation of indirect expenses based on square footage or another reasonable method.
• If claiming depreciation on the business portion of your home, keep documentation of the home’s basis at the time you started using it for business and records of depreciation claimed every year.

Quick sample calculation (regular method)

• Home total = 2,000 sq ft; office = 200 sq ft → business percentage = 10%.
• Annual mortgage interest (from Form 1098) = $8,000; utilities = $2,400; homeowner’s insurance = $1,200; repairs = $600.
• Indirect expenses sum = $12,200 × 10% = $1,220 deductible for business share.
• Add direct expenses (e.g., repainting the office $300) = $1,520 total.
• Depreciation: if you claim depreciation for the business portion, compute allowable depreciation per IRS rules and include it on Form 8829; keep basis records and depreciation schedules.

Common audit triggers and how documentation prevents them

• Claiming an office that’s not exclusive: maintain dated photos and a statement of exclusive use in your files.
• Overstating square footage: keep measurement notes and a sketch or floor plan showing overall home and office dimensions.
• Misallocating personal expenses as business: separate business account or card reduces commingling and simplifies substantiation.

Special considerations for employees and contractors

• Self‑employed/independent contractors: eligible to claim home office deduction if space is used regularly and exclusively for business (reported on Schedule C). Use Form 8829 for regular method (irs.gov/forms-pubs/about-form-8829).

• Employees: for tax years 2018 through 2025, miscellaneous unreimbursed employee business expenses (including a home office) are not deductible for most employees because of the Tax Cuts and Jobs Act. Exceptions apply to certain categories (e.g., qualified performing artists, fee-basis government officials, employees with impairment-related work expenses). Check IRS Pub. 529 and Pub. 587 for details.

Documentation best practices — practical tips I use with clients

• Separate accounts: pay business purchases from a dedicated business bank account or card to produce a clean paper trail.
• Monthly reconciliation: at month end, reconcile business receipts to bank/credit card statements and enter them into an accounting system or spreadsheet.
• Organized digital archive: scan receipts and label files with date, vendor, and purpose. Keep a backup copy in cloud storage.
• Annual summary sheet: prepare a one‑page summary that lists the office square footage, total home square footage, business percentage, and a line‑item summary of deductible totals. Put this with the tax return files for easy retrieval.

Related topics and links

• For more on calculating which expenses you can deduct, see our glossary page “Home Office Deduction” for a broader explanation: https://finhelp.io/glossary/home-office-deduction/
• If you’re claiming internet costs, our guide “Home Office Internet Expenses Deduction” explains allocation methods: https://finhelp.io/glossary/home-office-internet-expenses-deduction/
• For tracking expenses throughout the year, see “How to Track Work-From-Home Expenses for Tax Time”: https://finhelp.io/glossary/how-to-track-work-from-home-expenses-for-tax-time/

What to do if you’re audited

• Provide contemporaneous records: the IRS will ask for receipts, measurement notes, and Form 8829 or Schedule C entries. Having documents organized by year and by category makes responses faster and reduces exposure.
• Work with a CPA or enrolled agent: if an auditor questions allocation, a practitioner can help present the documentation and, when appropriate, negotiate adjustments or explain business practices.

Authoritative sources

• IRS — Home Office Deduction and Publication 587 (Business Use of Your Home): https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction and https://www.irs.gov/publications/p587
• IRS — Form 8829, Expenses for Business Use of Your Home: https://www.irs.gov/forms-pubs/about-form-8829
• IRS — Recordkeeping for small businesses: https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping

Professional disclaimer

This article is educational and does not substitute for personalized tax advice. Tax rules change, and exceptions can apply. For advice tailored to your situation, consult a CPA, tax attorney, or enrolled agent.

Closing note

In my practice I’ve seen well‑documented home office claims survive detailed IRS review; poor records almost always lead to denied deductions. Invest 1–2 hours per month to organize receipts and update your allocation worksheet — it often pays for itself at tax time and reduces audit stress.