If you run a business from your home—or use a portion of it exclusively for work—you may qualify for the home office deduction. This tax benefit can help reduce your overall taxable income by allowing you to write off a portion of your household expenses, including mortgage interest, rent, utilities, insurance, repairs, and even depreciation.
Who Qualifies?
The home office deduction is available to both homeowners and renters, whether you’re working from an apartment, mobile home, or even a separate studio or detached garage. To qualify, the space you’re claiming must be:
- Used regularly and exclusively for business, and
- Either your principal place of business, or a location where you meet with clients, customers, or patients.
An exception exists for qualified daycare providers and individuals who store business inventory at home—these cases require regular use but not exclusive use.
What Counts as a “Principal Place of Business”?
Your home qualifies as the principal place of business if you conduct your core work activities there and spend the majority of your business hours in that space. For example, if you occasionally answer emails at home but maintain an external office or storefront, the home office deduction likely wouldn’t apply.
You also cannot claim a deduction if the space is used for both personal and professional purposes. A guest bedroom with a desk doesn’t count. The IRS is specific: it must be dedicated solely to your business.
How to Calculate Your Deduction
To determine how much you can deduct, you’ll need to calculate the percentage of your home used for business. There are two common ways to do this:
- Square footage method: Divide the square footage of your business-use space by the total square footage of your home.
- Room count method: If all rooms are roughly equal in size, divide the number of rooms used for business by the total number of rooms.
You’ll then apply this percentage to your eligible household expenses. For example, if 10% of your home is used for business, you can deduct 10% of your electricity bill, property taxes, internet costs, and more.
For qualified daycare providers without exclusive-use areas, the calculation is slightly different. You’ll use the number of hours per day the space is used for daycare and apply that to your total expenses.
Important Limits to Know
Your home office deduction cannot create a business loss. This means your allowable expenses are limited to the income your business generates. However, some non-deductible amounts—like property taxes or mortgage interest—can still be reported on Schedule A if you itemize.
If you’re using Form 8829, which is attached to Form 1040 Schedule C, you’ll report all home-related expenses and deductions there. If your business is taxed as an S Corporation or partnership, you’ll need to handle the deduction differently—often through an accountable reimbursement plan or rent agreement between you and the business.
Depreciation and Recapture
If you claim depreciation on the business portion of your home, be aware that if and when you sell your home, the IRS may require recapture of the depreciation claimed. This means you’ll pay taxes on the amount previously deducted, so it’s important to track those figures over time.
Final Thoughts
The home office deduction can provide meaningful tax savings, especially in today’s world of remote and hybrid work. Just be sure to keep thorough records, use the space exclusively for business, and understand how your business structure impacts your filing requirements.
Need help figuring out if you qualify or calculating the right amount? Our team helps Seattle-area freelancers, consultants, and small business owners maximize their deductions while staying fully compliant.
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