The rules, plainly
How the home-office deduction is worked out.
A plain-words summary of IRS Publication 587 (for 2025 returns) and the depreciation table in Publication 946. A later tax year uses the 2025 figures until the IRS publishes new ones. It is how this site does the arithmetic, not tax advice: the publications are the authority, and the links go straight to them.
1 Who can take it
The deduction is for a business you run yourself: a sole proprietorship or single-member LLC reported on Schedule C is the common case. If you work from home as an employee, Publication 587's own flowchart ends at "No deduction" for the federal return, apart from a few groups who deduct work expenses on Form 2106 (Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses). This site is not for those cases.
2 The use tests
The part of the home you count must be used regularly and exclusively for the business. A spare room that is also the guest room fails the exclusive-use test; a corner used only for the business can pass. It must also be your principal place of business, a place where you meet clients or customers in the normal course of business, or a separate structure. Doing your administrative and management work there, with no other fixed place where you do much of it, counts as principal place of business. Storage of inventory or product samples and daycare facilities have their own rules (see Publication 587).
An office file lets you tick each test and write down how you meet it, in your own words, for your records.
3 Your share of the home
Divide the area used for business by the area of the whole home. A 200 sq ft room in a 2,000 sq ft home is 10%. Any reasonable measure works, and square feet is the usual one. That share is applied to costs for the whole home; costs only for the office space count in full.
4 The simplified method
- $5 per square foot of the business area, counting at most 300 sq ft (so at most $1,500).
- For part of a year, or when the area changes, use the average monthly allowable square footage: add each month's area (up to 300) and divide by 12. A month with fewer than 15 days of business use counts as zero.
- It cannot be more than the gross income from the business use of the home less the business costs that are not for the home. Anything over is lost; the simplified method has no carryover.
- No depreciation, so nothing to recapture when you sell. If you itemize, your mortgage interest and real-estate taxes stay whole on Schedule A.
5 The regular method (Form 8829)
The business share of what the home actually cost: mortgage interest, real-estate taxes, insurance, utilities, repairs, HOA fees, security, rent (for renters), plus depreciation for owners. Office-only costs count in full. It is figured on Form 8829 and the total goes on Schedule C line 30, as the simplified amount does.
6 The income limit, in order
Apart from mortgage interest and real-estate taxes, home costs cannot create or increase a loss from the business. The limit is the gross income from the business use of the home, less the business costs that are not for the home, and it is filled in this order:
- Tier 1: the business part of costs you could deduct anyway: mortgage interest and real-estate taxes (and qualified disaster losses). These count in full.
- Tier 2: operating costs: insurance, utilities, repairs, rent and the like, only up to what the limit still has room for.
- Tier 3: depreciation, last, with whatever room is left.
One detail this site does not split for you: if part of your real-estate tax or mortgage interest is over what Schedule A would allow, that excess part belongs in tier 2 on Form 8829. Your preparer will make that split.
7 Depreciation
The business part of the home is depreciated like nonresidential real property: 39 years, straight line, mid-month convention. The base is the smaller of your adjusted basis (what you paid plus improvements) or the fair market value when you first used the office, less the land. Multiply by your share, then by the year's percentage from Publication 946 Table A-7a:
| First month of business use | Year 1 |
|---|---|
| January | 2.461% |
| February | 2.247% |
| March | 2.033% |
| April | 1.819% |
| May | 1.605% |
| June | 1.391% |
| July | 1.177% |
| August | 0.963% |
| September | 0.749% |
| October | 0.535% |
| November | 0.321% |
| December | 0.107% |
Years 2 to 39 are 2.564% each; year 40 takes what is left. If the office was in use for only some months of a year after the first, this site takes 2.564% times the months in use over 12. In the year business use ends, Publication 946's mid-month convention counts that last month as half a month; your preparer makes that last small adjustment. Depreciation you took, or could have taken, is taxed back (recaptured) when you sell the home.
8 Carryover and switching methods
You can choose either method each year by using it on a timely filed return. Regular-method amounts that did not fit under the limit carry forward to the next year you use the regular method; in a simplified year they wait. If you use the regular method after a simplified year, depreciation continues with the table's percentage for that year of the recovery period.
9 What this site leaves out
Employees, daycare providers' time-based share, more than one home or business in a file, casualty losses, depreciation of separate improvements, the business use of furniture and equipment, the mid-month detail in the year business use ends (see section 7), and state rules. In an office file, cost-log lines dated in a month the office was not in use are left out, so a yearly bill should be entered for the months in use only. For those, read Publication 587 or ask a tax professional.