Home Office Deduction
The home office deduction allows self-employed individuals to deduct expenses related to a portion of their home used regularly and exclusively for business.
If you use part of your home exclusively and regularly for business, you may qualify for the home office deduction. This can include a dedicated room or a clearly defined area of a room. The key requirement is "exclusive use" — the space cannot double as a guest bedroom or playroom.
There are two methods for calculating the deduction. The simplified method allows $5 per square foot of office space, up to 300 square feet, for a maximum deduction of $1,500. The regular method calculates actual expenses (mortgage interest, utilities, insurance, repairs, depreciation) proportional to the percentage of your home used for business.
The regular method typically yields a larger deduction but requires more recordkeeping. For example, if your home is 2,000 square feet and your office is 200 square feet, you can deduct 10% of your qualifying home expenses.
Important: W-2 employees cannot claim the home office deduction under current tax law (post-2017 Tax Cuts and Jobs Act). This deduction is only available to self-employed individuals, independent contractors, and business owners.
The home office deduction also allows you to deduct a percentage of otherwise non-deductible expenses like homeowner's insurance and home repairs. If you use the regular method, you can also depreciate the business portion of your home.
Practical Example
Maria uses a 250 sq ft room in her 2,000 sq ft home exclusively for her consulting business (12.5%). Her annual home expenses total $30,000 (mortgage interest, property tax, utilities, insurance, maintenance). Her home office deduction using the regular method is $3,750 — significantly more than the $1,250 simplified method.