Home Office Deduction: Simplified vs Regular Method Explained

Overview

The home office deduction reduces taxable income for taxpayers who use part of their home regularly and exclusively for business. Two methods are available: the Simplified Method (a standard rate) and the Regular Method (actual expenses prorated to business use). Which method is best depends on your actual costs, recordkeeping tolerance, and whether you want to claim depreciation (with its consequences on sale).

Authoritative guidance comes from the IRS — especially Publication 587, Business Use of Your Home, and instructions for Form 8829. These rules are current as of 2025 (IRS Publication 587; About Form 8829) and should guide eligibility and calculations (IRS Publication 587: https://www.irs.gov/publications/p587; About Form 8829: https://www.irs.gov/forms-pubs/about-form-8829).

Who can claim the home office deduction?

• Self-employed taxpayers (sole proprietors) and independent contractors who file Schedule C can claim the deduction.
• Certain statutory employees and those who run a business from home (partnerships, S-corps for shareholder-employees under specific rules) may qualify.
• Most W-2 employees generally cannot claim a home office deduction for tax years 2018 through 2025 because the Tax Cuts and Jobs Act suspended miscellaneous itemized deductions (this effectively bars unreimbursed employee business expenses). There are narrow exceptions for a few categories (for example, some performing artists and reservists) — check Publication 587.

Note: If you get an employer reimbursement or you’re an employee required to maintain a home office for the employer’s convenience, talk with your payroll or tax advisor about whether the employer can exclude reimbursements from income or provide an accountable plan.

Eligibility tests (key rules you must meet)

• Regular and exclusive use: The area claimed must be used regularly and exclusively for your trade or business. Occasional or mixed personal use disqualifies that space.
• Principal place of business: The home office must be your principal place of business, or it must be used to meet clients or patients regularly, or be a separate structure not attached to the home.

These tests are explained in IRS Publication 587 and form the baseline for either deduction method.

Simplified Method: how it works, example, pros & cons

• Calculation: $5 per square foot of qualifying home office space, up to 300 square feet; maximum deduction = $1,500.
• Recordkeeping: You only need to record the square footage and how you computed it — no receipts for each home expense are necessary.
• Depreciation: Not allowed under the simplified method. That simplifies tax returns and avoids future depreciation recapture.

Example: A 150 sq. ft. dedicated office × $5 = $750 deduction.

Pros:

• Easy calculation and minimal records.
• No depreciation, so no depreciation recapture when you sell.
• Often best when actual allocated expenses are low.

Cons:

• Capped at $1,500; if your allocated actual expenses exceed that, the Regular Method may save more.

IRS reference: Publication 587, ‘Simplified method’ section.

Regular Method: how it works, example, pros & cons

• Calculation steps:

1. Determine business-use percentage: (Square feet of office) ÷ (Total finished square feet of home).
2. Add qualifying home expenses (mortgage interest, real estate taxes may be allocated differently for itemized deduction interaction; utilities, homeowners insurance, repairs, casualty losses, and depreciation if allowed).
3. Apply the business-use percentage to the applicable expenses to get the deductible amount. Separate direct (100% business) vs indirect (apportioned) expenses.
4. If you are self-employed, report the deduction on Schedule C; Form 8829 is used to calculate deductible amounts for self-employed taxpayers.

Example: Home = 2,000 sq. ft.; office = 200 sq. ft. => business-use = 10%.
Annual expenses: mortgage interest $6,000, utilities $1,800, repairs (general) $600, insurance $1,200, depreciation allowed $2,000. Prorated deductions = 10% of each indirect expense = $600 + $180 + $60 + $120 = $960 plus depreciation $2,000 × 10% = $200; total deduction = $1,160 (plus any direct expenses fully deductible).

Pros:

• Can produce a larger deduction when actual costs and depreciation are substantial.
• Allows deduction of direct expenses (e.g., repairs to the office) in full.

Cons and tax consequences:

• Requires detailed records and supporting receipts.
• If you claim depreciation under the Regular Method, you may have to recapture depreciation as ordinary income when you sell the home to the extent of the business portion (depreciation recapture rules). This can increase taxable gain on sale (see IRS Publication 587 on depreciation and recapture).

IRS reference: Form 8829 and Publication 587.

Switching methods and depreciation implications

• You can choose either method for each tax year, but depreciation and basis rules matter when you change methods. If you used the Regular Method and claimed depreciation, that depreciation affects your adjusted basis and may be subject to recapture when you sell the property. If you switch to the Simplified Method, you simply stop taking depreciation (the simplified option itself doesn’t create depreciation recapture for years you didn’t claim depreciation).

The rule of thumb: if you have claimed substantial depreciation in prior years, the Regular Method’s immediate tax savings need to be weighed against potential recapture later.

Recordkeeping & audit readiness

• Simplified: Document the office square footage and how you measured it (diagram or floor plan), and retain a copy with your tax records.
• Regular: Keep receipts, canceled checks, bills, and a record of how you computed the business-use percentage. Keep mortgage or rent statements, utility bills, insurance invoices, repair receipts, and depreciation schedules.

Audit tip: The IRS pays particular attention to exclusive-use and square-footage claims. See our guide What the IRS Looks for in Small-Scale Home Office Audits for typical red flags and documentation best practices (internal guide: https://finhelp.io/glossary/what-the-irs-looks-for-in-small-scale-home-office-audits/).

How to choose: practical decision checklist

1. Estimate both calculations: compute the Simplified deduction and the Regular deduction (including depreciation).
2. Compare net tax benefit this year and consider long-term effects (depreciation recapture on sale).
3. Consider recordkeeping capacity and audit risk — use Simplified if you prefer minimal documentation and your Regular-method deduction is small.
4. If you rent or have low fixed costs, Simplified often wins. If you own with high mortgage interest, substantial depreciation, or large utilities/repairs tied to the business, the Regular Method often yields more.

Common mistakes to avoid

• Claiming a space that’s not used exclusively for business.
• Mismeasuring office square footage or including hallways/closets.
• Not separating direct vs indirect expenses in the Regular Method.
• Forgetting to consider depreciation recapture when planning long-term.

Quick FAQs

• Can renters claim the deduction? Yes. Renters can allocate a portion of their rent and utilities to business use if they meet the tests.
• Can you use different methods in different years? Yes, you can choose the method that benefits you each tax year. Be mindful of prior depreciation taken under the Regular Method.

Practical examples from practice

• Low-cost consultant: A tech consultant with modest utilities and no mortgage calculated the Simplified Method and claimed $1,200 using a 240 sq. ft. office — less paperwork and similar tax benefit.
• Owner with high mortgage & depreciation: An artist who had built out a studio and claimed depreciation found the Regular Method produced larger deductions but later faced a higher tax cost when selling the home due to recapture.

Internal resources and further reading

• Documenting Home Office Expenses Under Current Rules — step-by-step documentation and examples: https://finhelp.io/glossary/documenting-home-office-expenses-under-current-rules/
• Home Office Rent Deduction — how renters should apportion rent and utilities: https://finhelp.io/glossary/home-office-rent-deduction/
• What the IRS Looks for in Small-Scale Home Office Audits — audit red flags and recordkeeping tips: https://finhelp.io/glossary/what-the-irs-looks-for-in-small-scale-home-office-audits/

Professional tips and closing notes

• Run both calculations before filing to determine which yields the greatest net tax benefit.
• Keep a consistent method of measuring square footage and back it up with a simple floor sketch.
• If your situation is complex (S-corp shareholder, mixed-use property, or large depreciation), consult a CPA or tax professional — I recommend this for cases where the Regular Method’s depreciation and recapture effects could materially change long-term tax outcomes.

Professional disclaimer: This article is educational only and does not constitute tax or legal advice. Consult a qualified tax professional for guidance tailored to your situation.

Authoritative sources

• IRS Publication 587, Business Use of Your Home (current edition). https://www.irs.gov/publications/p587
• IRS, About Form 8829, Expenses for Business Use of Your Home. https://www.irs.gov/forms-pubs/about-form-8829