Home office deduction: who qualifies and how to work it out

What the home office deduction is

The home office deduction is a federal tax deduction for the part of your home that you use for a business. If the space qualifies, you deduct either a flat amount per square foot or a business share of home costs, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance.

Owners and renters can both claim it. For the IRS, a home includes a house, apartment, condominium, mobile home, boat, or similar property that provides basic living accommodations. If you rent and the space qualifies, you can deduct part of the rent you pay.

The full rules are in Publication 587 (2025), Business Use of Your Home. This page is general information, not tax advice. State income tax rules vary by state, so check how your state treats the deduction, and ask a tax professional about your own return.

Home office deduction requirements

A space has to pass a use test and a location test. The table gives each test in the IRS's words, with an example. For sellers, the main exception to the use test is inventory storage, covered in the next section.

Selling at fairs or markets does not by itself rule out the home office. The IRS lists activities that will not disqualify your home office from being your principal place of business, including when you conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. What matters for this route is where you do the administrative work, which in one IRS example includes phoning customers, ordering supplies, and keeping the books.

Does a craft room or storage space qualify?

A craft room passes the exclusive use test only if you use it for the business and nothing else. A room that is also a guest room, a playroom or a space for your own hobby projects fails, because you do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes.

The space does not have to be a whole room. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition. A corner of a bedroom with a worktable and shelves can qualify if nothing personal happens there.

Storage is the main exception for people who sell products. If you keep stock at home, you can deduct expenses for the business use of your home without meeting the exclusive use test, as long as you meet all of these tests:

• You sell products at wholesale or retail as your trade or business.
• You keep the inventory or product samples in your home for use in your trade or business.
• Your home is the only fixed location of your trade or business.
• You use the storage space on a regular basis.
• The space you use is a separately identifiable space suitable for storage.

Example: a candle maker has no shop or studio outside her home. She keeps finished candles and packing supplies on shelving along one wall of the basement, where the family also does laundry. The shelving area can still qualify under the storage exception. A similar IRS example about basement storage says the expenses are "deductible even though you do not use this part of your basement exclusively for business".

If she later rents a studio and makes the candles there, her home no longer passes the only-fixed-location test, so the storage exception no longer covers the shelves.

Simplified home office deduction vs the regular method

Once a space qualifies, you pick a method. You may choose to use either the simplified method or the regular method for any taxable year. Once you have chosen a method for a taxable year, you cannot later change to the other method for that same year.

The simplified method suits a small space and anyone who would rather not track bills and depreciation. The regular method can give more when the space is over 300 square feet or home costs per square foot are high, but it needs more records.

How to calculate the home office deduction

These steps do what a home office deduction calculator does. Example: a seller rents a 1,000 square foot apartment and uses a 120 square foot room only for the business. The year's rent is $18,000, utilities are $2,400 and renter's insurance is $240. The business earns more than the deduction, so the income limit does not reduce it.

1. Measure the space

   Measure the business area and the whole home in square feet: 120 and 1,000 in the example.

2. Work out the simplified amount

   Multiply the business square feet, up to 300 square feet, by $5 per square foot. In the example, 120 square feet gives $600.

3. Work out the business percentage

   One method the IRS gives is "Divide the area (length multiplied by the width) used for business by the total area of your home". In the example, 120 divided by 1,000 is 12%.

4. Apply the percentage to actual costs

   For rent, the IRS says to multiply your rent payments by the percentage of your home used for business. Utilities and insurance are indirect expenses, which the IRS marks "Deductible based on the percentage of your home used for business". Its examples are "Insurance, utilities, and general repairs". In the example, 12% of $20,640 ($18,000 plus $2,400 plus $240) is $2,476.80. Costs only for the business space, such as painting that room, are direct expenses: "Deductible in full".

5. Compare and file

   Here the regular method gives $2,476.80 against $600, figured on Form 8829. With your own numbers, divide the year's home costs by the home's total square feet. If the result is more than $5 per square foot, the regular method gives the larger deduction, before the income limit.

Home office deductions for self-employed people and small businesses

A sole proprietor reports the deduction on line 30 of Schedule C (Form 1040), which lowers the business profit on that form.

If you also have a job, the space has to qualify for your own business. A room you use for your employer's work does not count, because taxpayers can no longer claim a deduction for use of a home office as an employee.

If you run more than one business from home, whether the office is the principal place of business is determined separately for each of your trade or business activities. With the simplified method there is a maximum of 300 square feet for all of the businesses.

Income limit, records and selling your home

The deduction cannot exceed gross income from business use of home less business expenses. Under the regular method, you can carry over the excess to the next year in which you use actual expenses. Under the simplified method, any excess may not be carried over and claimed as a deduction in any other taxable year.

Keep measurements of the space and the bills behind the regular method. The IRS says you must keep records that provide the information needed to figure your deductions for the business use of your home.

Homeowners who use the regular method deduct depreciation on the business part of the home. When you sell the home, you cannot exclude the part of the gain equal to any depreciation you deducted (or could have deducted) for periods after May 6, 1997. The simplified method avoids this, as the table above shows.

Figures on this page and the 1099-K threshold

Tax figures change, so this page was checked against IRS pages on 3 Oct 2026.

One related threshold changed under the One, Big, Beautiful Bill, which retroactively reinstated the reporting threshold in effect prior to the passage of the American Rescue Plan Act of 2021. Payment apps and online marketplaces now have to send you Form 1099-K when your payments for goods or services total over $20,000 in more than 200 transactions. The form does not affect whether your home office qualifies, and if you receive payments for selling goods or services, you must report all income on your tax return.

Where Nation fits

Questions about the home office deduction