Home Office Deduction
A deduction for the business use of your home, available to self-employed individuals. You can use the simplified method ($5 per square foot, up to 300 sq ft) or the regular method based on actual expenses.
The home office deduction allows self-employed individuals to deduct expenses for the portion of their home used regularly and exclusively for business. The space must be your principal place of business or a place where you regularly meet clients. W-2 employees cannot claim this deduction under current federal law.
There are two methods for calculating the deduction. The simplified method gives you $5 per square foot of dedicated office space, up to a maximum of 300 square feet ($1,500 max deduction). The regular method calculates the actual expenses — including mortgage interest or rent, utilities, insurance, repairs, and depreciation — based on the percentage of your home used for business.
The regular method can yield a larger deduction, especially for expensive homes or large office spaces, but requires detailed record-keeping. The simplified method is easier and avoids depreciation recapture when you sell your home. You can switch between methods from year to year to use whichever provides the greater benefit.
Related Terms
Schedule C
The IRS form (Schedule C of Form 1040) used by sole proprietors and single-member LLCs to report business income and expenses. The net profit flows to your personal tax return.
Business Expenses
Costs incurred in running a business that are deductible on your tax return if they are ordinary (common in your industry) and necessary (helpful and appropriate for your trade).
Sole Proprietor
An individual who owns and operates an unincorporated business by themselves. Business income and expenses are reported on Schedule C of the personal tax return.
Self-Employment Tax
The combined Social Security (12.4%) and Medicare (2.9%) tax paid by self-employed individuals — effectively both the employee and employer shares of FICA, totaling 15.3%.
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