Can I Claim My Rent as a Business Expense?

Operating a business involves managing numerous costs, and rent often represents a significant portion of these expenditures. For any business, ordinary and necessary expenses incurred in conducting business can be deducted from income. This lowers the total taxable profit and, consequently, the amount of tax owed. Rent paid for property used in a trade or business is a common example of such a deductible expense. The specific rules for this deduction depend on whether the property is a commercial space or a part of your personal residence.

Qualifying for the Home Office Deduction

For self-employed individuals, independent contractors, and certain business owners, deducting a portion of home rent hinges on meeting specific Internal Revenue Service (IRS) requirements. The primary qualifications are the “exclusive and regular use” test and the “principal place of business” test. These rules ensure that only legitimate business use of a home is subsidized through tax deductions. Under the Tax Cuts and Jobs Act, employees who work from home for an employer are not eligible for this deduction through 2025.

The exclusive use test means a specific area of your home must be used only for your trade or business, with no personal use of the space. For example, a spare bedroom converted entirely into an office would meet this test. Conversely, if you work at your dining room table, which is also used for family meals, that space fails the test because it serves a dual personal purpose. The area does not need to be a full room or be separated by a permanent partition, but it must be a separately identifiable space.

The regular use test requires that you use the business part of your home on a continuous and ongoing basis, as incidental or occasional business use does not qualify. The IRS does not define “regular” with a specific number of hours, but the use must be a consistent part of your business operations. For instance, using a home office a few hours each day would likely pass this test, whereas using it only a couple of times a month might not.

The home office must be your principal place of business. This means your home is the primary location where you conduct business, or it’s a place where you meet with clients in the normal course of business. An exception exists if you conduct administrative or management activities for your business from home and have no other fixed location for these duties. This rule allows individuals like plumbers or landscapers, who perform services at customer locations but handle billing from home, to qualify. A separate, unattached structure like a studio used exclusively and regularly for business does not have to meet the principal place of business test.

Deducting Rent for a Commercial Property

When a business rents a property that is not a personal residence, the rules for deducting rent are more direct. If you rent a storefront, office suite, or workshop, the rent you pay is a deductible business expense. The primary requirement is that the property must be used for conducting your trade or business. Unlike the home office deduction, the entire property is presumed to be for business.

For a commercial lease where the entire property is used for business, 100% of the rent paid is deductible. The expense must be ordinary and necessary for your industry, and the IRS requires that the rent amount be reasonable. You cannot deduct rent payments that are significantly higher than the fair market value for a similar property. This rule is particularly scrutinized in transactions between related parties, such as renting from a family member.

Payments made under a conditional sales contract, where you are effectively purchasing the property, are not deductible as rent; the agreement must be a true lease. Additionally, if you pay rent in advance, you can only deduct the portion of the rent that applies to the current tax year. For example, if in December you prepay rent for the following January, that amount is deducted in the next tax year.

Calculating Your Home Office Deduction

Once you determine you qualify for the home office deduction, you must calculate the deductible amount. The IRS provides two methods: the simplified method and the actual expense method. You can choose which method to use each year, but you cannot switch methods for the same tax year after you have filed your return. The choice depends on whether the ease of the simplified method outweighs a potentially larger deduction from the actual expense method.

The simplified method offers a straightforward way to calculate your deduction without extensive record-keeping. The IRS sets a prescribed rate per square foot for the part of your home used for business. For the 2025 tax year, the rate is $6 per square foot, with the calculation capped at a maximum of 300 square feet. This means the maximum deduction under this method is $1,800 per year. You simply multiply the square footage of your office space (up to the limit) by the current rate.

The actual expense method requires more detailed tracking but can result in a larger deduction. This method involves calculating the percentage of your home used for business and applying that percentage to your eligible home expenses. You determine your business use percentage by dividing the square footage of your office by the total square footage of your home. For instance, if your office is 200 square feet and your home is 2,000 square feet, your business use percentage is 10%.

With the business use percentage, you can deduct a portion of your indirect home expenses. These are costs that benefit the entire home, such as the total rent you paid for the year, utilities, and renter’s insurance. Using the previous example, if you paid $24,000 in rent for the year, you could deduct 10% of that amount, or $2,400. You can also deduct 100% of any direct expenses that benefit only the office, such as painting the space.

How to Claim the Deduction on Your Tax Return

After calculating your home office deduction, you must report it correctly on your federal income tax return. The specific forms you use depend on your chosen calculation method. For both methods, the deduction is claimed on Schedule C (Form 1040), Profit or Loss from Business, which is filed with your Form 1040 by sole proprietors to report business income and expenses.

If you use the simplified method, the process is direct. You will enter the square footage of your home and the area used for business on the appropriate lines of Schedule C. The form’s instructions guide you through the calculation, and the final deduction amount is entered on the line for “Expenses for business use of your home.” No additional forms are required for this option.

If you use the actual expense method, you must first complete and attach Form 8829, Expenses for Business Use of Your Home. This form is where you document your calculations, including the total area of your home, the area of your office, and the breakdown of your expenses. The form guides you through allocating indirect expenses based on your business-use percentage. The final deduction from Form 8829 is then transferred to your Schedule C.