Home Office Expenses: Examples You Can Deduct

The home office deduction allows individuals who use a part of their home for business to deduct certain associated costs. This tax benefit is designed for self-employed individuals, independent contractors, and certain business owners to offset the expenses of maintaining a dedicated workspace.

Qualifying for the Home Office Deduction

To claim the home office deduction, a taxpayer must meet two IRS tests. The first is the “regular and exclusive use” test, which means a specific area of the home must be used consistently and solely for business activities. For example, a spare room used only as an office qualifies, but a kitchen table used for both family meals and work does not.

The second requirement is the “principal place of business” test. This test is met if the home office is the main location for conducting business or a place used to meet with clients. A home office also qualifies if it is used for administrative activities, like billing, and there is no other fixed location where these activities are performed. This provision allows individuals who work at other locations, such as plumbers or consultants, to qualify.

Following the Tax Cuts and Jobs Act (TCJA), the deduction for home office expenses was suspended for employees for tax years 2018 through 2025. The deduction remains available for self-employed individuals who file a Schedule C, independent contractors, and gig economy workers.

Direct vs. Indirect Expenses

Once qualified, a taxpayer can deduct expenses related to their home office. These costs are categorized as either direct or indirect expenses, which determines how they are deducted.

Direct Expenses

Direct expenses are costs that apply only to the home office space and are 100% deductible. These expenses are not shared with the personal portion of the home and do not need to be prorated. Examples of direct expenses include:

• Painting or making repairs only within the office area
• Hiring a cleaning service specifically for the office
• Purchasing business-specific furniture, such as a desk or chair
• Maintaining a dedicated business phone line used exclusively for work

Indirect Expenses

Indirect expenses are costs for maintaining and operating the entire home, so only a portion of the total cost is deductible. The deductible amount is based on the percentage of the home used for business. Common indirect expenses include:

• Mortgage interest, property taxes, and homeowners insurance
• Monthly rent payments
• Utilities such as electricity, gas, and water
• Security system and homeowner’s association (HOA) fees
• General home repairs, such as fixing the roof or furnace

Methods for Calculating the Deduction

After identifying qualifying expenses, taxpayers must choose one of two methods to calculate the final deduction amount. The choice between the “Actual Expense Method” and the “Simplified Method” depends on record-keeping preferences and which option yields a greater tax benefit. A taxpayer can choose which method to use each year.

Actual Expense Method

The actual expense method requires calculating the business-use percentage of the home. This is done by dividing the square footage of the home office by the total square footage of the home. For instance, if an office is 200 square feet and the home is 2,000 square feet, the business-use percentage is 10%.

This percentage is then applied to the total of all indirect expenses to determine the deductible portion. The direct expenses are then added to this amount. This method requires diligent record-keeping of all home-related expenses throughout the year and the completion of a specific form with your tax return.

Simplified Method

The simplified method uses a prescribed rate of $5 per square foot of the home office space. This calculation is capped at a maximum of 300 square feet, limiting the total deduction to $1,500 per year. Taxpayers calculate this deduction directly on their Schedule C.

While you cannot deduct actual home expenses like utilities with this method, you can still claim allowable itemized deductions, such as mortgage interest, on Schedule A. With this method, you do not claim depreciation on your home, which means you will not have to recapture any depreciation if you sell your home later.