Home Office Deduction: Simplified vs. Regular Method With an Example
October 29, 2026
If you are self-employed and use part of your home regularly and exclusively for business, you may deduct related costs. (Employees who work from home cannot claim this deduction on the federal return under current law.) There are two methods. The simplified method allows $5 per square foot of the office, up to 300 square feet, for a maximum of $1,500. The regular method deducts the business percentage of actual home expenses.
Example: a 150 sq ft office in a 1,500 sq ft home is 10% of the space. Simplified: 150 × $5 = $750. Regular: if annual rent is $18,000, utilities $2,400, and renter's insurance and internet $600, total $21,000 × 10% = $2,100.
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The regular method gives $1,350 more in deductions in this example, but requires record-keeping of actual expenses and, for homeowners, depreciation of the office portion of the house (which may be recaptured when you sell). The simplified method is easy and avoids depreciation and complicated forms (the deduction is entered on the tax return with a worksheet). You can choose a different method each year. Homeowners can include mortgage interest, property taxes, insurance, utilities, repairs, and depreciation in the regular method.
| Item | Simplified method | Regular method |
|---|---|---|
| Office size | 150 sq ft | 150 sq ft (10% of home) |
| Calculation | 150 x $5 | 10% x $21,000 |
| Deduction | $750 | $2,100 |
| Record-keeping | Square footage only | Receipts for all expenses |
| Depreciation | None | Required for owned homes |
Tax Savings
A deduction reduces taxable income, not tax directly. A self-employed person in the 22% federal bracket also reduces self-employment tax, so the combined marginal rate may be around 36% (22% income tax plus roughly 14.1% of the deduction, which is 15.3% × 92.35%). The savings from a $2,100 deduction are about $2,100 × 0.36 = $756; the $750 simplified deduction saves about $270. State taxes may add savings.
Qualifying Rules
The space must be used regularly and exclusively for business: a dedicated room or a clearly defined area. A desk in the corner of a living room where family also watches TV doesn't qualify if it is used for personal purposes. The home must be your principal place of business, a place where you meet clients, or a separate structure used for business. The deduction cannot exceed the income from the business activity.
Audit-Proofing
Keep a floor plan with measurements, photos, and utility and rent records. Calculate the percentage consistently, and don't claim expenses twice, for example, internet use deducted as both a business expense and part of the home office. Consult a tax professional about your situation, because rules change. This article is general information, not tax advice.
Frequently Asked Questions
What is the simplified method rate?
$5 per square foot up to 300 square feet, a maximum of $1,500.
Can employees claim the home office deduction?
Not on the federal return under current law.
What does 'exclusive use' mean?
The space is used only for business.
Which method gives a larger deduction?
Often the regular method, but it requires more records.
Can I switch methods?
Yes, from year to year.