Home Office Deduction: Simplified vs Regular Method

If you work for yourself from a spare room, you may be able to deduct part of what your home costs. There are two ways to figure it. The simplified method is a flat $5 per square foot, and the regular method uses your real bills.

This post explains who qualifies, how the home office deduction simplified method compares with the regular one, and which records to keep. Figures here come from IRS Publication 587 for 2025 returns. Check the version for your tax year before you file.

Who can claim a home office deduction?

Two tests come first, whichever method you pick.

Regular and exclusive use. The IRS says you must regularly use part of your home exclusively for conducting business. Exclusive means that area is used for nothing else. If the same desk is also where the kids do homework, it fails. Regular means more than now and then: Publication 587 says incidental or occasional business use is not regular use.

You don't need a permanent partition. A corner of a room can count if it is clearly the business area and used only for business.

Principal place of business. Your home must be your principal place of business. That generally means you use the space for administrative or management work, and you have no other fixed location where you do substantial amounts of that work. Doing some paperwork in a car or a hotel room doesn't disqualify you. Neither does having someone else handle your billing.

A home can also qualify in other cases, such as when you meet clients there in person as part of your business. Publication 587 covers those.

Who is out. The IRS flowchart asks whether you use the space as an employee. If you do, no deduction is allowed. This deduction is for people who run their own business or work for themselves.

Using a room because it is handy, or because it would be helpful, is not enough. The use has to meet the tests above.

The simplified method

The simplified method skips the bills. You multiply the square footage of your office by a set rate.

• Rate: $5 per square foot.
• Cap: 300 square feet, so the largest deduction is $1,500.
• Shared cap: if you run more than one business from home, the 300 square feet is shared among them.

For example, say your office is 120 square feet. At $5 a square foot, the deduction is $600. Say it's 400 square feet. The cap applies, so you count 300 and the deduction is $1,500.

What you give up is the rest. Under this method you can't deduct depreciation on the part of the home you use, and you generally can't deduct actual home expenses such as utilities or insurance. Business expenses that have nothing to do with the home itself, such as your software or supplies, are still deductible on their own.

If you used the space for only part of the year, the deduction is based on your average monthly square footage. A month with fewer than 15 days of business use counts as zero.

The deduction also can't be more than the income from that business use of the home, after subtracting business expenses unrelated to the home.

The regular method

The regular method deducts a share of what your home actually costs. First, find the business percentage. Publication 587 says to divide the area used for business by the total area of the home. Any other reasonable method that accurately reflects the business use is also allowed.

Then split your expenses into two groups:

• Direct expenses benefit only the business area, like painting that room or repairing something in it. These are generally deductible in full.
• Indirect expenses benefit the whole home, like mortgage interest, insurance, utilities and repairs. You multiply these by your business percentage.

Depreciation on the business part of the home is part of the regular method, too. Self-employed people figure the regular method on Form 8829, according to the IRS.

Suppose your office is 150 square feet in a 1,500 square foot home. That is 10 percent. If indirect expenses for the year come to $18,000, the business share is $1,800. Add any direct expenses on top. The numbers here are only an example.

Which method suits whom?

There's no universal answer. A few common patterns:

The right choice depends on your numbers, so run both for one year and compare. An accountant can help with the depreciation side, because it can affect what happens when you sell.

You choose a method each year. Once you've made the choice for a year it can't be changed for that year, but you can use the other one the next year.

The records that back it up

Publication 587 says your records don't have to follow a particular method, but they must show what is needed to figure the deduction. For both methods, that includes:

• how much of your home you use for business, such as a measured floor plan or a note of the room dimensions,
• that the use is regular and exclusive, and
• for the simplified method, your business gross income and your business expenses unrelated to the home.

For the regular method, keep the evidence of what you paid: canceled checks, receipts and other proof of your expenses. Also keep records of your home's cost basis, improvements and the depreciation you took.

The IRS generally says to keep records for as long as they matter for any tax law, which is usually at least three years from filing. See how long to keep receipts for the full rules in the US and UK, and what can I write off as a business expense for the "ordinary and necessary" test that sits behind every deduction.

Do this now

1. Measure the office and write the square footage and date in a note.
2. Check it against both tests: used only for business, and used regularly.
3. Work out both methods for last year, even roughly.
4. If you choose the regular method, collect the utility, insurance and repair bills for the year in one folder.

If you go the regular route, it helps if each bill lands somewhere you can find it. A forwarding setup like the one in forward receipts from Gmail automatically can file utility emails as they arrive, so you aren't hunting in December.

This is general information, not tax advice. Rules and amounts change, so check with a tax professional about your situation.