Overview

Hybrid workers—people who split time between an employer’s office and work at home—often ask whether they can claim the home office deduction. The short answer depends on your tax status: self-employed taxpayers, independent contractors, gig‑economy workers and certain small‑business owners can generally claim the deduction. Most W‑2 employees cannot claim it for tax years 2018 through 2025 because the Tax Cuts and Jobs Act suspended unreimbursed employee business expense deductions; however, employees can still benefit if their employer pays a reimbursement under an accountable plan (IRS, Publication 587; IRS guidance on employee expense deductions).

This article explains the documentation you need, the calculation limits for both the simplified and regular methods, special situations for hybrid workers, recordkeeping best practices, and audit red flags to avoid.

Who can actually claim the deduction?

  • Self-employed taxpayers (Schedule C filers) and partners or shareholders who report business income can claim the home office deduction under the regular or simplified methods and report it on Schedule C and Form 8829 when applicable (see IRS Publication 587 and Form 8829 instructions).
  • S‑corporation owners and employees: the company can reimburse the owner/employee through an accountable plan or lease the space from the owner. Without an accountable plan, a W‑2 employee generally cannot take the deduction personally.
  • W‑2 employees: generally disallowed for tax years 2018–2025 unless reimbursed by an employer through a compliant accountable plan.

(Reference: IRS Publication 587, Business Use of Your Home; IRS Form 8829 guidance.)

Two permitted calculation methods and their limits

1) Simplified method

  • Flat rate: $5 per square foot of qualified home office space, up to 300 square feet.
  • Maximum deduction: $1,500.
  • No depreciation deduction allowed for the space and fewer records are required (you still should keep proof of square footage and that the space is used regularly and exclusively for business).
  • Often easiest for small home offices or low-cost situations.

2) Regular method (actual expenses)

  • You prorate actual qualifying home expenses by the business percentage of your home (business square footage ÷ total square footage). Eligible costs include mortgage interest, rent, utilities, repairs allocable to the office, insurance, and depreciation if you own the home.
  • Use Form 8829 for Schedule C filers to calculate the deduction and any carryover of disallowed expenses.
  • Limit: home office deduction cannot exceed the gross income from the business use of the home (i.e., it won’t create or increase a business loss in certain situations); excess expenses often carry forward.

Which method to choose? The regular method often yields a larger deduction when your actual home expenses are high or you claim depreciation, but it requires detailed records. The simplified method reduces documentation burden and record-keeping.

Key qualification tests for hybrid workers

  • Regular and exclusive use: the part of the home used for business must be used regularly and exclusively for that business activity. Occasional, incidental, or mixed personal use generally disqualifies the space (IRS Pub 587).
  • Principal place of business or used to meet clients: your home must be your principal place for administrative or management activities, or a space regularly used to meet clients or patients in the normal course of business.
  • Special rules: storage of inventory, daycare operations, and certain types of storage have different tests—see Pub 587 for specifics.

Example for a hybrid worker: if you use a room most workdays to do client billing and administrative tasks and there is no other fixed location to do those tasks, the room may qualify as your principal place of business even if you physically work at the employer’s office some days.

Documentation checklist (what auditors want to see)

Good documentation both substantiates the deduction and reduces audit risk. Keep at least these records for 3–7 years depending on your situation:

  • Floor plan and square footage calculation showing the home and the space claimed for business use.
  • Photographs of the workspace showing exclusive business setup when feasible.
  • A regular usage log or calendar showing typical work‑at‑home days or the routine that supports “regular” use (not necessarily daily timestamps but sufficiently specific entries like blocks of days and purposes).
  • Receipts and bills for mortgage interest, rent, utilities, insurance, repairs and improvements.
  • Lease agreements or homeowner statements if renting; closing statements and mortgage interest (Form 1098) if owning.
  • For the regular method: records showing how you calculated the business percentage and any depreciation calculations (Form 8829 and supporting depreciation schedules).
  • Employer communications about remote-work or reimbursement policies; copies of any employer reimbursements or accountable plan agreements.

Tip: Keep separate business bank/credit accounts for office purchases when possible—this simplifies expense substantiation.

Common audit triggers and mistakes to avoid

  • Claiming exclusive use when the room doubles as a guest room, family room, or hobby space.
  • Using vague time logs or no log at all—auditors often ask for contemporaneous calendars or appointment records.
  • Forgetting depreciation: if you use the regular method and later sell the house, depreciation you claimed will reduce your basis and can cause recapture; keep those depreciation schedules.
  • W‑2 employees claiming the deduction despite the TCJA suspension—this is a common costly mistake.

(Reference: IRS audit guidance in Publication 587 and related IRS FAQs.)

Special considerations for hybrid workers and employer reimbursements

  • Ask your employer about an accountable plan. If the employer reimburses qualifying home office expenses under an accountable plan (requiring substantiation and returning excess reimbursements), the employee doesn’t claim the deduction and the reimbursement is not taxable.
  • S‑corp arrangements: owners should consult a CPA before taking a home office deduction. Often the company will document rent paid to the owner or reimburse expenses, but these transactions must be structured correctly to avoid adverse tax consequences.

Depreciation and selling your home

If you used the home for business and claimed depreciation under the regular method, you must account for depreciation when you sell. Depreciation reduces your basis and may trigger gain subject to recapture rules; this can affect how much of the home sale gain qualifies for the Section 121 exclusion for primary residences. Keep detailed depreciation records; Form 8829 and your depreciation schedule serve as primary support.

Examples showing simple calculations

  • Simplified method example: 200 sq ft home office × $5 = $1,000 deduction (no depreciation allowed).

  • Regular method example: 200 sq ft office in 1,000 sq ft home = 20% business use. Annual qualified home costs = $12,000 (rent + utilities + insurance attributable). Business portion = 20% × $12,000 = $2,400. If you also claim $800 in direct expenses (e.g., a dedicated office lamp), add those in the calculation per Form 8829.

Practical tips for hybrid workers

  1. If you are a W‑2 hybrid employee, get your employer to adopt an accountable reimbursement plan for home office expenses—this preserves tax benefit without claiming an employee deduction.
  2. Keep a simple calendar or digital log marking days worked from home and primary activities performed—this is often enough to demonstrate regular use.
  3. Take pictures and keep a clear square footage calculation—measurements should be defensible and consistent year-to-year.
  4. Use the simplified method if your office is small (<300 sq ft) and you prefer a low‑documentation route.
  5. Consult a CPA when you have mixed-use rooms, share space with family, operate a business through an S‑corp, or claimed depreciation in prior years.

Helpful resources and further reading

Related FinHelp posts:

Professional disclaimer

This article is educational and does not replace personalized tax advice. Tax law changes and your facts matter—consult a qualified CPA or tax professional before taking or changing tax positions. Information here reflects guidance current through 2025 but may change.

Bottom line

Hybrid workers who are self-employed or who receive compliant employer reimbursements can use the home office deduction to reduce taxable income. Choose the method that matches your recordkeeping appetite, keep clear, contemporaneous documentation, and speak with a tax professional when your situation includes S‑corporations, depreciation, or mixed‑use spaces.