Home Office Deduction
A deduction for the business-use portion of a home, available to self-employed taxpayers who use part of their home regularly and exclusively for business.
Detailed Explanation
Self-employed taxpayers can deduct the home-office portion of mortgage interest, property tax, utilities, repairs, insurance, and depreciation. Two methods are available: the Simplified Method ($5 per square foot up to 300 square feet) or the Regular Method (actual expenses based on the business-use percentage). The space must be used regularly and exclusively for business as the principal place of business. W-2 employees cannot claim a home-office deduction under current law.
Key Points
- Requires regular AND exclusive business use of the space as a principal place of business.
- Simplified Method: $5 per square foot up to 300 square feet (maximum $1,500 deduction).
- Regular Method: actual home expenses prorated by business-use percentage, reported on Form 8829.
- W-2 employees cannot claim it (the TCJA suspended unreimbursed employee expenses through 2025).
- Depreciation taken under the Regular Method is subject to recapture when the home is sold.
Practical Example
A freelancer uses a 200-square-foot room exclusively as an office in a 2,000-square-foot home (10% business use). Under the Simplified Method the deduction is 200 x $5 = $1,000. Under the Regular Method, if total home expenses (utilities, insurance, depreciation, mortgage interest) are $30,000, the deduction is 10% x $30,000 = $3,000, the better choice here but it requires recapturing depreciation on a future sale.
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