How to Deduct a Home Office the Right Way

Calculate home office deductions using simplified or actual expense methods with IRS-compliant documentation and measurement.

1. Verify exclusive business use. The space must be used regularly and exclusively for business—no personal use allowed. A dedicated room works; a corner of your bedroom where you also sleep doesn't. Mixed-use spaces disqualify the entire area.
2. Measure and calculate square footage. Measure your office space in square feet, then calculate the percentage of your total home. Example: 200 sq ft office ÷ 2,000 sq ft home = 10%. This percentage drives both deduction methods.
3. Choose your deduction method. Simplified method: $5 per square foot up to 300 sq ft maximum ($1,500 annual cap). Actual expense method: Apply your home office percentage to mortgage interest, property taxes, utilities, repairs, and depreciation. Larger offices typically benefit from actual expenses.
4. Track qualifying expenses. For actual expenses: mortgage interest, property taxes, utilities, insurance, repairs, and home depreciation. Keep receipts and calculate the business portion using your square footage percentage. Don't include improvements—those get depreciated separately.
5. Document everything with photos and records. Photograph your office setup showing exclusive business use. Maintain a log of business activities conducted there. Keep utility bills, property tax statements, and repair receipts. IRS audits focus heavily on home office claims.
6. File Form 8829 for actual expenses. Simplified method goes directly on Schedule C. Actual expenses require Form 8829 with detailed calculations. The form limits your deduction to your business income—you can't create a loss solely from home office expenses.