If you run your business from home, part of your housing cost may be deductible — but this deduction has strict entry requirements and two very different calculation methods. Understanding both keeps you from either leaving money on the table or claiming something you can't defend.

First, an important scope note: as of 2026, the home office deduction is available to self-employed people — sole proprietors, single-member LLC owners, partners, gig workers. W-2 employees working remotely cannot claim it on their federal return, even if their employer requires them to work from home.

The exclusive-use test

To qualify, you must use part of your home regularly and exclusively for business, and it must be either your principal place of business or a place where you regularly meet clients. Two words carry all the weight:

  • Regularly — ongoing use, not the occasional weekend of paperwork.
  • Exclusively — the space is used only for business. A dedicated spare-room office qualifies. The kitchen table does not. A desk in the corner of the living room can qualify if that specific area is used for nothing else — the test applies to an identifiable space, not necessarily a whole room with a door.

Exclusive use is where most claims fail. If the "office" doubles as a guest room or the kids' homework station, it doesn't qualify. (Two narrow exceptions exist, for inventory storage and home daycare.)

The principal place of business part is more forgiving than it sounds: if you use the space for administrative work — invoicing, scheduling, bookkeeping — and have no other fixed location where you do that work, it qualifies, even if you perform your actual services at client sites.

The simplified method

The simplified method is exactly what it sounds like: deduct $5 per square foot of qualifying space, up to 300 square feet — a maximum of $1,500 per year. No expense tracking, no depreciation, no records beyond the square footage and your qualifying use.

It's the right choice when your space is small, your rent is modest, or you simply don't want the recordkeeping. It's also cleaner if you own your home, because it avoids depreciation — and the tax you'd otherwise owe on that depreciation when you sell.

The actual-expense method

The actual method deducts the business-use percentage of real home costs. Divide the office square footage by the home's total to get your percentage, then apply it to:

  • Rent (for renters — often the biggest number by far)
  • Mortgage interest and property taxes (for owners)
  • Homeowners or renters insurance
  • Utilities: electricity, heat, water, gas
  • Repairs and maintenance that benefit the whole home; repairs to the office itself count in full
  • Depreciation on the home's business portion (owners)

A 150-square-foot office in a 1,500-square-foot apartment is 10%. With $2,400 monthly rent, that's $2,880 a year of rent alone — nearly double the simplified maximum. As a rule of thumb: renters in expensive cities usually come out ahead with actual expenses; owners with small offices usually prefer simplified.

You can choose the method each year, so run both numbers the first time and see which wins. One constraint applies to both: the deduction generally can't exceed the income from the business, though excess actual-method amounts can carry forward.

Bookkeeping notes

Keep home costs out of your business accounts by default — pay rent and utilities personally, then let the deduction be computed at tax time from your records. If you prefer to see the business share in your books, record only the calculated percentage, clearly noted (e.g., "home office 10% share — June rent"). Whatever you do, keep a simple file: a floor plan or measurement note, photos of the space, and the year's utility and rent totals. That small folder is the entire defense of this deduction.