Who can deduct a home office
If you are self-employed and part of your home is your workplace, you may be able to deduct part of your housing costs on Schedule C. The space must pass two tests:
- Exclusive use. A specific area (a room, or a clearly separate part of a room) is used only for your business. A dining table where you also eat does not qualify.
- Regular use. You use it for business on a regular basis, not occasionally.
And it must be one of these:
- Your principal place of business. This includes a home office where you do your administrative or management work (billing, bookkeeping, scheduling, ordering supplies) if you have no other fixed location where you do that work. A cleaner or contractor who works at clients’ homes but does their paperwork at home can qualify.
- A place where you meet clients or customers in the normal course of business.
- A separate structure, like a detached studio or garage, used for the business.
Storage of inventory or product samples and licensed daycare have their own exceptions to the exclusive use test.
Two ways to figure it
Simplified method. Multiply the square footage of your office by $5, up to 300 square feet, for a maximum of $1,500. No receipts for home expenses, no depreciation, nothing to recapture when you sell. You report it on Schedule C, line 30.
Actual expenses (regular method). Figure the share of your home used for business (office square feet divided by the home’s square feet) and deduct that share of your real costs: rent or mortgage interest, utilities, homeowners or renters insurance, repairs, HOA fees and depreciation if you own. You use Form 8829.
An example
A freelancer rents a 1,000 square foot apartment and uses a 200 square foot room only as an office, so the business share is 20%.
| Amount | |
|---|---|
| Rent for the year | $18,000 |
| Utilities | $2,400 |
| Renters insurance | $240 |
| Total home costs | $20,640 |
| Actual expense method (20%) | $4,128 |
| Simplified method (200 sq ft × $5) | $1,000 |
With $50,000 of profit, the simplified method saves this freelancer about $231 in federal tax, and the actual expense method about $952. A home office deduction lowers both income tax and self-employment tax, because it reduces your Schedule C profit.
In general, actual expenses win when rent or housing costs are high relative to the office size. The simplified method wins on simplicity: it makes sense for small offices, or when your share of costs would be close to $1,500 anyway.
Limits and fine print
- Income limit. The deduction cannot exceed the income from the business after your other business expenses. With actual expenses, the unused part carries over to next year; with the simplified method, it does not.
- Mortgage interest and property taxes. With the simplified method you still deduct them in full on Schedule A if you itemize. With actual expenses, the business share goes on Form 8829 instead.
- Selling your home. If you own your home and use actual expenses, the office is depreciated. When you sell, the part of the gain equal to the depreciation allowed is taxable, even if the rest of the gain is excluded. The simplified method has no depreciation, so it avoids this.
- Business expenses unrelated to the home (supplies, software, a separate business phone line) are deducted on their own lines regardless of the home office.
A bonus for drivers and field workers
If your home office is your principal place of business, driving from home to a client, job site or delivery zone is a deductible business trip, not commuting. Without a qualifying home office, the first and last trips of the day may count as commuting. Our mileage vs actual expenses guide explains how to log those miles.
Keep records
- A floor plan or measurements of the office and the home.
- Photos showing the space is used only for work.
- Receipts and statements for rent, utilities and insurance if you use actual expenses.
See the rest of the expenses you can deduct in our guide to 1099 deductions by profession, and check the effect on your total tax with our 1099 tax calculator.