Home office deduction calculator · Free tool

What is the home office deduction?

If you are self-employed and use part of your home for your business, you can deduct part of the cost of your home. The IRS gives you two ways to work it out: a simplified method with a fixed rate, and a regular method that uses your real costs.

Do you qualify?

Your office must pass two tests:

Regular and exclusive use. You use the space for your business on a regular basis, and for nothing else. Storage of inventory and licensed daycare are the exceptions.
Principal place of business. It is where you do your main business work, such as admin and management, or where you meet clients, or it is a separate building used for the business.

Employees who work from home for someone else cannot take this deduction on their federal return.

The simplified method

Multiply the square feet of your office by $5, up to 300 square feet. The most you can deduct is $1,500. You still deduct mortgage interest and property tax in full as itemized deductions if you itemize, and there is no depreciation to recapture when you sell the home.

The regular method

Divide the office area by the area of the home to get your business share. Apply that share to rent (or mortgage interest and property tax), utilities, insurance and general repairs. Repairs only to the office count in full; costs only for the rest of the home do not count. Owners also deduct depreciation on the office share. You file Form 8829 with your return.

An example

Ana rents a 1,500 square foot apartment for $24,000 a year and pays $4,800 for utilities and insurance. Her office is 150 square feet, 10% of the home. The simplified method gives $750. The regular method gives 10% of $28,800, which is $2,880. The regular method is worth $2,130 more.

Keep the records

Keep your lease or mortgage statements, utility bills and a simple floor plan or photo with measurements. If you use the regular method, record the home costs in your books through the year. Righto, the free accounting app for Mac, sorts them from your bank statements.

Frequently asked questions

What is the simplified home office deduction?

$5 for each square foot of your office, up to 300 square feet, so at most $1,500 a year. You do not add up home costs or work out depreciation.

Who can take the home office deduction?

Self-employed people whose office is used regularly and only for the business, and is their main place of business or a place where they meet clients. Employees who work from home for an employer cannot take it on their federal return.

Does the room have to be used only for work?

Yes, with two exceptions: storing inventory or product samples, and a licensed daycare. A desk in the corner of a guest room that guests also use does not qualify; a clearly separate area of a room used only for work can.

Which method gives more?

The regular method often gives more when your home costs are high or your office is large. The simplified method is quicker and has no depreciation to pay back when you sell. The calculator shows both so you can compare.

Can I switch methods each year?

Yes. You can choose either method each year.

Is there a limit?

Yes. The deduction cannot be more than your business income minus your other business expenses. With the regular method, the amount you cannot use carries over to next year; with the simplified method it does not.

Where does it go on my return?

Schedule C, line 30. With the regular method you also file Form 8829.

Sources

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