What Is the Max Square Footage for a Home Office Deduction?
Calculating your home office deduction involves a choice between a simple, capped method and one based on actual expenses with long-term tax consequences.
The home office deduction allows individuals to convert a portion of their household expenses into business write-offs. To claim this deduction, taxpayers must use part of their home for business and can choose between two calculation methods.
Eligibility Requirements for the Home Office Deduction
To qualify for the home office deduction, taxpayers must meet the exclusive and regular use tests. The exclusive use test requires that a specific area of the home is used only for trade or business. The regular use test mandates that the space is used for business on an ongoing, consistent basis, not just occasionally.
The home office must also be the taxpayer’s principal place of business. This is established if it is the location where administrative or management activities are performed and there is no other fixed location for these duties. For example, a plumber who performs services at customer locations but uses a home office for scheduling and billing would likely meet this standard.
The Tax Cuts and Jobs Act of 2017 (TCJA) changed eligibility for this deduction. Through 2025, W-2 employees cannot claim the home office deduction, even if an employer requires them to work from home. The deduction is reserved for self-employed individuals, like independent contractors and freelancers, who file a Schedule C.
The Simplified Method
The simplified option removes the need for detailed record-keeping of actual expenses. Instead, the deduction is based on a prescribed rate of $5 per square foot of the home used for business.
This method caps the deductible area at 300 square feet, resulting in a maximum deduction of $1,500 per year. If the dedicated business space is smaller, for instance 200 square feet, the deduction would be $1,000.
Choosing this method means a taxpayer cannot deduct actual expenses or claim depreciation for that tax year. However, they can still deduct otherwise allowable itemized deductions, like mortgage interest and property taxes, on Schedule A. The choice is made annually, allowing a switch to the regular method in a future year.
The Regular Method
The regular method allows for the deduction of actual expenses related to the home office and does not have a prescribed square footage limit. The calculation is based on determining the business-use percentage of the home, which is then applied to various home expenses.
To find this percentage, you divide the square footage of the area used for business by the total square footage of the home. For example, if a home is 2,000 square feet and the office is 200 square feet, the business-use percentage is 10%. This percentage is then used to prorate indirect expenses.
This method requires record-keeping, as all claimed expenses must be substantiated. The total deduction cannot exceed the gross income from the business use of the home. Any excess deduction can be carried over to the following tax year, a feature not available with the simplified method. Taxpayers using this method must file Form 8829.
Deductible Expenses Under the Regular Method
When using the regular method, expenses are categorized as either direct or indirect. Direct expenses are costs that apply only to the home office space and are 100% deductible. Examples include the cost of painting the office or making repairs solely within that space.
Indirect expenses are costs associated with maintaining the entire home and are deductible based on the business-use percentage. Common indirect expenses include:
- Mortgage interest
- Homeowners’ insurance
- Property taxes
- Utilities like electricity and heat
- General home repairs
- Security system costs
If the business-use percentage is 10%, then 10% of these total costs can be deducted.
Another indirect expense is depreciation, which accounts for the wear and tear on the portion of the home used for business. This allows the taxpayer to recover the cost of the business part of their property over time.
Depreciation Recapture Upon Sale of the Home
When a home that contained a home office is sold, any depreciation that was claimed or could have been claimed is subject to recapture. This means the total amount of depreciation deducted over the years must be reported as income in the year of the sale.
This recaptured amount is not treated as a capital gain. Instead, it is taxed at a maximum rate of 25%, which can be higher than long-term capital gains rates. This can result in an unexpected tax bill for sellers who are otherwise eligible for the home sale gain exclusion, which allows single filers to exclude up to $250,000 of gain ($500,000 for joint filers).
Recapture applies even if the taxpayer did not actually claim the depreciation deduction they were entitled to. The IRS requires recapture of “allowed or allowable” depreciation.