The simplified home office deduction lets self-employed people deduct 5 dollars for each square foot of home used for business, up to 300 square feet, so the most it can be is 1,500 dollars a year. The space must be used regularly and only for business, employees can't claim it, and you skip depreciation and most of the record-keeping.
Working from your kitchen table doesn't get you a home office deduction. Working from a room you use only for your business can, and the IRS's simplified option makes claiming it close to painless. Here's how it works, the rules that decide whether you qualify, and when the more involved regular method is worth the extra effort.
The simplified option in one table
| Rule | Simplified option |
|---|---|
| Rate | 5 dollars per square foot |
| Maximum space | 300 square feet |
| Maximum deduction | 1,500 dollars (my sum: 5 dollars times 300 square feet) |
| Depreciation | None, and no recapture when you sell the home |
| Mortgage interest and real estate taxes | Claimed in full on Schedule A if you itemise |
| Records | Measurements of the space, not every utility bill |
Who can claim it
The simplified option changes the maths, not the eligibility. The IRS says the space must be used exclusively and on a regular basis for business. That's two tests:
- Exclusively. The space is used only for the business. A spare room that's also a guest room doesn't pass. A dedicated corner can, if nothing else happens there.
- Regularly. You use it for business on an ongoing basis, not once in a while.
And there's a big exclusion. The IRS says employees can no longer claim a home office deduction at all, because miscellaneous itemised deductions for employee business expenses were eliminated. If you work from home for an employer on a W-2, this isn't available to you, even with a perfect office. It's for the self-employed and business owners.
How to work out your deduction
- Measure the space you use exclusively for business, in square feet.
- Cap it at 300 square feet.
- Multiply by 5 dollars.
- Check the result doesn't exceed your business's gross income from that use of the home, less its other expenses.
- Claim it with your business return, usually Schedule C.
A worked example: a 120 square foot spare room used only for your design business gives 600 dollars. A 400 square foot studio is capped at 300 square feet, so 1,500 dollars. These are my sums from the IRS rate.
The income limit and the carryover catch
Under either method, the home office deduction can't be more than the gross income from the business use of your home minus your other business expenses. In other words, it can't create a loss on its own. The difference is what happens to the excess. With the regular method, you can carry the unused amount forward to a later year. With the simplified option, you can't: the excess is lost. And if you had a carryover from using the regular method in an earlier year, you can't use it in a year you choose the simplified option.
Simplified vs regular method
| Simplified | Regular | |
|---|---|---|
| How it's worked out | 5 dollars per square foot, up to 300 | Business percentage of actual home expenses |
| Records | Square footage | Every expense, kept and documented |
| Mortgage interest and real estate taxes | In full on Schedule A | Split between Schedule A and your business schedule |
| Depreciation | None | Yes, on the business part of the home |
| When you sell the home | Nothing to pay back | Depreciation recaptured on any gain |
| Excess over the income limit | Lost | Carried forward |
Which method should you use?
The simplified option suits people with a small office, modest home costs, or no appetite for tracking utilities and repairs. The regular method can produce a bigger deduction if your home is large or expensive to run and the office is a good share of it, but it brings depreciation and recapture when you sell. You can choose either method each year. One technical point: if you use the simplified method one year and switch back to the regular method later, the IRS says you must work out depreciation for the later year using the optional depreciation tables.
Measuring the space
Measure the floor area of the room or area you use only for business, length times width, and note it down with a sketch or photo. If part of a room is your office, measure only that part, and make sure there's a clear boundary in practice: nothing personal happens in it. Re-measure if you move or change the layout during the year.
If you move part-way through the year
The simplified option works on the space you use for business, so if you move home or change which room you work from, keep a note of the dates and the square footage for each place. That way you can show how you arrived at the figure you claim for the year, rather than estimating after the event.
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Common mistakes
- Claiming a space that's also used for family life or guests.
- Claiming it as an employee on a W-2.
- Claiming more than 300 square feet under the simplified option.
- Expecting the deduction to create or increase a business loss.
My verdict
If you're self-employed with a dedicated workspace, the simplified option is the easy win: measure it, multiply by 5 dollars, and you're done. Run the regular method only if your space and home costs are large enough to make the paperwork worth it. For the rest of your Schedule C, see time tracking software and my tips for starting a small business.
Frequently asked questions
How much is the simplified home office deduction?
5 dollars per square foot of home used for business, up to 300 square feet, so up to 1,500 dollars.
Can employees use the simplified home office deduction?
No. The IRS says employees can no longer claim a home office deduction.
Does the space have to be a separate room?
No, but it must be used exclusively and regularly for business.
Can I switch between the simplified and regular methods?
Yes. You can choose either method for any tax year.
What happens if my home office deduction is more than my business income?
Under the simplified option, the excess can't be carried over. The regular method allows a carryover.
