Qualification requirements
The home office deduction has strict IRS requirements. Meeting both "exclusive use" and "regular use" tests is critical for audit protection.
✅ Qualifies for Deduction
- • Dedicated room used only for business
- • Section of room with clear business boundary
- • Separate entrance used only for business
- • Storage area for business inventory/supplies
- • Your principal place of business
- • Used regularly for client/customer meetings
❌ Does NOT Qualify
- • Kitchen table used occasionally for work
- • Bedroom corner with no clear separation
- • Living room where TV is also watched
- • Guest room bed doubles as filing space
- • Any space with personal/family use
- • Office used only a few times per month
Two calculation methods
Simplified Method (Form 8829 not required)
Calculation
$5 per square foot, up to 300 square feet maximum
Maximum deduction
$1,500 per year (300 sq ft × $5)
Benefits
No depreciation recapture, simpler record-keeping
Best for
Small offices, minimal home expenses, occasional use
Actual Expense Method (Form 8829 required)
Calculation
(Office sq ft ÷ Total home sq ft) × Home expenses
Deductible expenses
Mortgage interest, property tax, utilities, repairs, depreciation
Complexity
Detailed records required, depreciation recapture on sale
Best for
Large offices, high home expenses, significant business use
Actual expense deductions breakdown
| Expense Category | Deduction Method | Examples |
|---|---|---|
| Direct expenses | 100% deductible | Office repairs, painting office only |
| Indirect expenses | Business percentage | Utilities, insurance, mortgage interest |
| Unrelated expenses | Not deductible | Lawn care, bedroom repairs |
| Depreciation | Business percentage × rate | Home value × 2.564% × business use |
Record-keeping essentials
Document office space
Photos of office setup, floor plan with measurements, exclusive use proof
Track business use percentage
Hours worked from home, business vs personal usage logs
Save all receipts
Utilities, repairs, office supplies, internet, phone bills
Maintain business calendar
Client meetings, work hours, business activities in home office
Special considerations for employees
W-2 Employees: Limited Options
TCJA impact (2018-2025)
Miscellaneous itemized deductions suspended, including unreimbursed employee expenses
Exceptions
Armed forces reservists, qualified performing artists, fee-basis state/local officials
Employer reimbursement
Ask employer for accountable plan reimbursement instead
Regional differences
🇺🇸 United States
Self-employed only
Schedule C filers, partners, S-corp owners (with restrictions)
Depreciation recapture
Must recapture depreciation when home is sold (actual expense method)
🇨🇦 Canada
Employees & self-employed
Both can claim if working from home regularly
Temporary flat rate
$2/day up to $500 (simplified method for COVID period)
Detailed method
Reasonable percentage of home expenses
🇬🇧 UK
Working from home allowance
£6 per week tax-free without receipts
Actual costs method
Claim higher amounts with proper documentation
Audit protection strategies
⚠️ Common Audit Triggers
- • Claiming entire home: Unreasonable business percentage (over 30% of home)
- • Mixed-use spaces: Claiming living room, bedroom, or kitchen as office
- • Excessive utilities: 100% of internet, phone bills for partial business use
- • No business income: Large home office deduction with minimal earnings
- • Inconsistent years: Claiming different square footage year to year
Documentation Best Practices
Take photos showing exclusive business use
Maintain detailed calendar of business activities
Save all receipts with clear business purpose
Keep consistent square footage measurements
Conservative Approach
Use simplified method if close to $1,500 limit
Claim reasonable percentage of home (10-25%)
Avoid round numbers (exactly 20%, 25%, etc.)
Don't claim every possible expense
Calculation example
Sample Calculation (Actual Expense Method)
Home details: 2,000 sq ft total, 200 sq ft dedicated office (10%)
Annual expenses:
- • Mortgage interest: $12,000 × 10% = $1,200
- • Property taxes: $6,000 × 10% = $600
- • Utilities: $2,400 × 10% = $240
- • Home insurance: $1,200 × 10% = $120
- • Depreciation: $300,000 × 2.564% × 10% = $769
Total deduction: $2,929
Note: Compare to $1,000 simplified method (200 sq ft × $5)
💡 Pro Tip
If you move or change your home office setup, document the change immediately. Take photos, update measurements, and note the date. This shows the IRS you're maintaining accurate records and not inflating deductions.
Frequently Asked Questions
Can I claim a home office if I'm employed by someone else?
For tax years 2018-2025, W-2 employees generally cannot deduct home office expenses due to TCJA changes. Exceptions include armed forces reservists and certain performing artists. Check with your employer about reimbursement instead.
What if I use my home office for both business and personal activities?
You cannot claim the home office deduction if the space has any personal use. The "exclusive use" test requires the space to be used ONLY for business. Consider dedicating a specific area exclusively for work.
Should I choose simplified or actual expense method?
Calculate both methods annually and choose the higher deduction. Generally, actual expense method provides larger deductions for offices over 300 sq ft or homes with high expenses, but requires more documentation.
What happens to my deduction if I sell my home?
If you used the actual expense method and claimed depreciation, you must "recapture" that depreciation when you sell, paying taxes on it. The simplified method avoids this complication entirely.