Home Office Deduction Calculator

How the home office deduction works

The home office deduction allows self-employed individuals, freelancers, and business owners who use part of their home exclusively and regularly for business to deduct a portion of home expenses against business income. The deduction is available on Schedule C for sole proprietors and single-member LLCs, and on Schedule E for partners or S corporation shareholders who receive compensation. Employees who work from home are generally not eligible for this deduction under current tax law following the 2017 Tax Cuts and Jobs Act, which suspended the miscellaneous itemised deduction for unreimbursed employee business expenses through 2025.

The actual expense method calculates your deductible percentage by dividing the square footage of the dedicated office space by the total square footage of the home. A 200 square foot office in a 1,800 square foot home gives a business use percentage of 11.1 percent. This percentage is then applied to all qualifying home expenses: rent or mortgage interest, utilities, home insurance, repairs, and depreciation. If annual rent is $18,000, utilities are $2,400, and insurance is $1,200, total qualifying expenses are $21,600. At 11.1 percent, the deductible amount is $2,398. Depreciation on the business-use portion of the home may be added, and is calculated separately based on the home's cost basis and the IRS depreciation schedule for residential real property.

There is also a simplified method, introduced by the IRS as an alternative to the actual expense method, which allows a deduction of $5 per square foot of dedicated office space up to a maximum of 300 square feet, giving a maximum deduction of $1,500. The simplified method requires no tracking of actual expenses and eliminates the depreciation recapture issue, but typically produces a smaller deduction than the actual expense method for most taxpayers. This calculator uses the actual expense method, which is almost always more valuable and is worth the additional record-keeping.

The exclusive use requirement

The most important eligibility requirement for the home office deduction is that the space must be used exclusively and regularly for business. The IRS applies this requirement strictly: a room that doubles as a guest bedroom, a dining room table used occasionally for work, or a shared family computer area does not qualify. The office must be a dedicated space used only for business activities. This means that even if you work from your kitchen table every day, the kitchen does not qualify because it serves personal purposes as well. A separate room with a door that you use only for business activity is the clearest qualifying scenario. Some taxpayers use a portion of a room, in which case only the clearly demarcated and exclusively business-use area is measured for the square footage calculation.

Depreciation and recapture

When you use the actual expense method, you may also deduct a portion of the home's depreciation equal to the business use percentage multiplied by the annual depreciation on the residential structure (not the land). The depreciation deduction reduces your tax basis in the home, which creates a potential tax liability when the home is sold. Depreciation taken on a home office must be recaptured at sale and is taxed at the depreciation recapture rate of 25 percent, even if the gain on the home qualifies for the Section 121 exclusion. This means that years of small annual depreciation deductions can produce a meaningful recapture tax bill at sale. Taxpayers should be aware of this trade-off and factor it into their decision about whether to claim depreciation.

Record-keeping for home office deductions

To substantiate a home office deduction, maintain records of the square footage of both the office and the total home, floor plans or a description of the office space, and receipts or statements for all deducted home expenses. Photographs of the office showing it is used exclusively for business are useful supporting documentation. The key documentation burden is proving the exclusive use requirement: the office is a business workspace, not a shared or multipurpose room. Most tax professionals recommend keeping these records for at least seven years given the potential for IRS scrutiny of home office claims. The home office deduction has historically attracted some audit attention, so thorough documentation is important.