Home office deduction: who qualifies, and who doesn't

"I work from home, so I get the home office deduction." It's one of the most common things people believe about working from home, and for most people who say it, the answer is no. The deduction is real and it can be worth having, but it belongs to people who run a business, and it has two tests that are stricter than they sound. This page covers who qualifies, the two ways to figure it, the income limit that catches side businesses, and an example.

First question: employee or business owner?

If your home office is where you do your job for an employer, you can't deduct it on your federal return. IRS Publication 587 starts its decision chart with exactly that question, "Are you using the part of your home as an employee?", and a yes leads straight to "No deduction." ²

That was true from 2018 through 2025 because employee business expenses were suspended. In 2025 Congress made the suspension permanent: the Code now says no miscellaneous itemized deduction is allowed for any tax year beginning after 2017, with no end date. ⁴ So the remote W-2 employee is out, and that is not changing next year.

The deduction is for self-employed people, freelancers, independent contractors and sole proprietors, including a W-2 employee who also runs a side business from the same room. If that is you, read on.

The two tests

Test one: regular and exclusive use

You must use a specific area of your home regularly, and only, for the business. ¹ "Exclusive" is the word that disqualifies most rooms. A guest room where you also work, a dining table you clear for clients, a desk in the den where the family watches television: none of those pass. The area does not have to be a whole room. A clearly separated part of a room can qualify, as long as nothing else happens there. ²

There are two exceptions to exclusive use. A licensed daycare provider can count space that is also used personally, and a seller who keeps inventory or product samples at home can count the storage space if the home is the business's only fixed location. ²

Test two: principal place of business

The space must also be one of these:

• Your principal place of business. It counts if you use it for the administrative or management work of the business (billing, bookkeeping, scheduling, ordering) and you have no other fixed location where you do substantial administrative work. ³ Doing a little paperwork in a car or hotel room does not disqualify you. ²
• A place where you meet clients or customers in person in the normal course of business. ¹
• A separate structure, like a detached studio or garage, used exclusively and regularly for the business. It does not have to be your principal place of business. ¹

So a contractor who works at job sites all day but does all the billing from a home office can qualify. An occasional "office" that is merely convenient does not. ¹

Two ways to figure the deduction

The simplified method. Multiply the office's square footage by $5 per square foot, counting no more than 300 square feet. ⁵ There is no Form 8829, no depreciation, and no tracking of utility bills. The IRS can update the rate, so we re-check it each year. ⁶

The regular method. Figure the share of the home used for business, usually office square footage over total square footage, and apply that share to actual home expenses: rent or mortgage interest, real estate taxes, insurance, utilities, repairs and depreciation. You report it on Form 8829. ¹ It takes more records and can produce a larger deduction, especially in a high-cost home. If you own the home, the depreciation you claim (or could have claimed) can come back as tax when you sell. ²

You can choose the method each year. ²

The income limit

The home office deduction can't create a loss from the business. It is limited to the gross income from the business, less the business expenses that have nothing to do with the home. ³ Under the regular method, whatever is disallowed carries forward to the next year. Under the simplified method, the excess is simply lost for that year, and an older carryover waits for a year when you use the regular method. ²

This is the limit that catches new side businesses. A small first-year profit means a small home office deduction, however big the room.

What to gather

• A floor plan or measurements: total square footage and the office's.
• A year of rent or mortgage interest, property tax, insurance, utilities and repair records.
• For owners, the home's purchase price and improvements, for depreciation.
• Your business income and other business expenses, for the income limit.