What is the home office deduction?
The home office deduction lets self-employed people and business owners deduct a portion of their home costs when part of the home is used for business. It's one of the more misunderstood deductions out there — and one of the more scrutinized, so getting the rules right matters.
Who qualifies
Generally, self-employed individuals, freelancers, and small business owners. Since 2018, W-2 employees can no longer deduct unreimbursed home office expenses on their federal return, even if they work from home full-time.
The "regular and exclusive use" test
The space has to be used regularly and exclusively for business. A spare room used solely as your office qualifies; the kitchen table you also eat dinner at does not. This is the rule that trips up the most people.
Two ways to calculate it
Simplified method: a flat rate per square foot of your home office (up to a set maximum), with minimal recordkeeping.
Actual expense method: calculate the business-use percentage of your home, then apply it to actual costs — mortgage interest or rent, utilities, insurance, repairs, and depreciation. This method usually produces a bigger deduction but requires more documentation.
Things people get wrong
- Assuming a home office deduction guarantees an audit — it doesn't, as long as the space genuinely meets the exclusive-use test
- Forgetting that using the actual expense method affects your home's basis and can affect gain calculations when you eventually sell
- Not keeping square footage measurements and photos of the space on file