Compare the IRS simplified and regular methods for a self-employed home office
Updated October 2026
The deduction is for self-employed people, independent contractors and other business owners, reported on Schedule C with Form 8829 or the simplified-method worksheet. The space must be used regularly and exclusively for the business, and it must be your principal place of business, a place where you meet clients or customers in the normal course of business, or a separate structure used for the business. Administrative work counts: if you have no other fixed location where you do substantial billing, bookkeeping or scheduling, a home office used for that work can qualify. Employees who are paid on a W-2 cannot claim it. The 2017 tax law suspended employee business-expense deductions for 2018 through 2025, and P.L. 119-21 (July 2025) made that suspension permanent.
Office area is the floor space used only for business; total area is the whole home’s finished living space. Gross income is the business’s income for the year, and business expenses not tied to the home are everything else on your Schedule C, such as supplies, software and mileage. Enter whole-home amounts for mortgage interest and property taxes, rent, and utilities, insurance and repairs; the calculator applies your business percentage. Direct expenses are costs only for the office, such as painting it, and are deducted in full. For depreciation, enter the smaller of your home’s adjusted basis or its market value when you started using the office, excluding land, and pick the month if this is your first year.
Simplified: 240 sq ft × $5 = $1,200. No depreciation, no carryover, no Form 8829, and your mortgage interest and property taxes stay on Schedule A if you itemize.
Regular: the business-use percentage is 240 ÷ 1,200 = 20%. Then 20% × $12,000 of mortgage interest and property taxes = $2,400; 20% × $6,000 of utilities, insurance and repairs = $1,200; and depreciation is 20% × $250,000 × 2.564% = $1,282. Total: $4,882. The $2,400 of interest and tax would be deductible on Schedule A anyway for someone who itemizes, so for that taxpayer the real gain over the simplified method is $2,482 − $1,200 = $1,282 more in deductions, which also lowers self-employment tax because it is a Schedule C deduction.
| Situation | Business use | Simplified | Regular | Regular without interest and taxes | Carryover |
|---|---|---|---|---|---|
| Freelancer, 200 sq ft office in a 2,000 sq ft home | 10.0% | $1,000 | $2,889 | $1,489 | $0 |
| Renter, 120 sq ft room in a 900 sq ft apartment | 13.3% | $600 | $3,600 | $3,600 | $0 |
| Homeowner with high costs, 300 sq ft of 1,500 | 20.0% | $1,500 | $7,851 | $3,851 | $0 |
| Low-profit side business, 150 sq ft of 1,500 | 10.0% | $750 | $1,200 | $0 | $1,241 |
Renters often do well under the regular method because rent is an operating expense, not interest that could be itemized. The low-profit side business shows the income limit at work: its $0 of income left after other expenses and the business share of interest and taxes caps operating costs and depreciation, and the rest carries forward.
Most people divide office square footage by the home’s total, as above; Publication 587 also allows dividing by rooms if they are about the same size. Indirect expenses cover the whole home and are multiplied by the percentage: mortgage interest, real estate taxes, rent, utilities, homeowner’s or renter’s insurance, general repairs, and security systems. Direct expenses benefit only the office and are deducted in full. Unrelated expenses, such as landscaping or painting a room that is not the office, are not deductible.
The simplified rate has been $5 per square foot, up to 300 square feet, since Rev. Proc. 2013-13; Publication 587 (2025 edition) still uses it. Under either method the deduction cannot exceed the gross income from the business use of your home minus your other business expenses. Under the regular method, the business share of mortgage interest and taxes comes off first, then operating costs, then depreciation; anything disallowed carries forward to the next year in which you use the regular method. You can switch methods from year to year, but a year on the simplified method neither uses nor adds to the carryover.
A home office is depreciated as 39-year nonresidential real property, straight line: 2.564% of the business basis for each full year, and a smaller first-year percentage set by the month you started (2.461% for January down to 0.107% for December). Publication 587’s example: 8% of a $115,000 basis is $9,200, and starting in May at 1.605% gives $147.66 for the first year. When you sell the home, Publication 587 says you cannot exclude the part of the gain equal to depreciation allowed or allowable after May 6, 1997, even if the rest of the gain qualifies for the home-sale exclusion; that part is taxed as unrecaptured section 1250 gain, at a rate of up to 25%. If your records show you deducted less than you were entitled to, the amount you cannot exclude is what you actually deducted.
Two uses do not need to meet the exclusive-use test. A licensed (or exempt) daycare provider can deduct space used regularly for daycare, prorated by the hours it is used. A seller of products at wholesale or retail can deduct space used regularly to store inventory or samples if the home is the business’s only fixed location.
Claiming it as a W-2 employee, even when working from home full time. Mixed-use rooms: a guest room or a corner of the family room used for both fails the exclusive-use test. Including land in the depreciation basis, or using today’s value when it is higher than your adjusted basis. Double counting the business share of mortgage interest and taxes on both Schedule C and Schedule A. Forgetting the sale. Office depreciation is the one part of the gain the home-sale exclusion does not cover, so keep Form 8829 copies for every year you claimed it. Ignoring the income limit in a loss year.
It does not handle more than one business or more than one home office in a year, a home used for part of the year, daycare time-use percentages, casualty losses, or the excess real estate taxes and mortgage interest rules that apply when itemized amounts are limited. It does not compute your tax, self-employment tax or the home-sale gain. A tax professional is worth it when you sell a home with an office, when a carryover is involved, or when the office is in a separate structure.