How to Claim the Home Office Tax Deduction: Simplified vs. Regular Method

If you use part of your home for work, you may qualify for a home office tax deduction. In the US, there are two ways to calculate this deduction:

Each method has its own rules, advantages, and limitations. Choosing the right one depends on your situation, including the size of your workspace and your typical home-related costs. Let’s explore both options to help you determine which may be a better fit for you.

The Simplified Method

The Simplified Method generally offers an easier way to claim a home office deduction. Instead of tracking individual expenses, you multiply the square footage of your home office by $5 per square foot. This is the fixed rate set by the IRS. 

📝 Key Limits:

How to Use the Simplified Method

✏️ Example: If your home office is 200 square feet, your deduction would be:
200 sq. ft. × $5 = $1,000

The Simplified Method can be quicker because it avoids detailed expense tracking. But if your actual expenses exceed the limit, the Regular Method might be more beneficial. 

The Regular Method

The Regular Method takes a more detailed approach, allowing you to deduct actual home expenses based on how much of your home is used for business. This method may result in a higher deduction, but it requires more calculations and record-keeping.

📝 How it works:
First, determine what percentage of your home is used for business. For example, if your home office is 500 square feet and your total home size is 5,000 square feet, your business-use percentage is: 500 ÷ 5,000 = 10%

Then, expenses are categorized into:

✅ Direct expenses – Fully deductible costs specific to your office (e.g., office repairs, painting, or maintenance in the workspace).

✅ Indirect expenses – Costs shared with the rest of your home (e.g., mortgage, rent, utilities, insurance, general repairs). These are partially deductible based on the business-use percentage.

How to Use the Regular Method

📝 The Regular Method may be worth the extra effort if your actual home expenses exceed the Simplified Method’s $1,500 limit. But if you prefer less paperwork, the Simplified Method is an easier alternative.

Which Method Should You Use?

The right method depends on how much space you use for business, how detailed you want to be with expense tracking, and how much you could potentially deduct. Here are some things to consider:

The Simplified Method Is Easier

✅ Requires less record-keeping and is less complicated.

✅ No  need to track individual home expenses like mortgage, rent, or utilities.

✅ Just measure your office space and multiply it by $5 per square foot (up to 300 square feet).

✅ This option might be a better fit if you want to save time and avoid complex calculations.

The Regular Method May Result in a Higher Deduction

✅ If your home expenses are significantly high, the Regular Method may offer a larger deduction.

✅Calculate the percentage of your home used for business and apply that percentage to your actual expenses (mortgage, rent, insurance, utilities, maintenance).

✅ Requires more documentation, but if you already track expenses, the effort may be worth it.

✅ A quick estimate can help you determine if the extra work justifies the potential savings.

You Can Change Methods Each Year, But Not Mid-Year

Once you choose a method for a tax year, you cannot switch it for that year. However, you can choose a different method in future tax years if your business use or expenses change.

The Regular Method Allows You to Carry Forward Losses

One limitation of the Simplified Method is that if your business operates at a loss, you lose the home office deduction for that year.

With the Regular Method, if your home office deduction exceeds your income, you can carry forward the unused portion to offset future taxable income. This could be helpful if your business has fluctuating profits.

You Need to Depreciate the Value of Your Home If You’re Using the Regular Method

If you own your home and use the Regular Method, you must account for depreciation. This means spreading out the cost of your home over time and taking a partial deduction each year.

However, when you sell the home, the IRS may require you to pay taxes on the depreciation you’ve taken — this is called depreciation recapture.

With the Simplified Method, you don’t need to worry about depreciation.

Who is Eligible for the Home Office Deduction?

If you’re a small business owner or self-employed, you may qualify for the home office deduction—whether you rent or own your home. The key is that your workspace must meet two IRS requirements:

✅ It’s your principal place of business.
✅ You use it regularly and exclusively for work.

📝 Good to know:

Principal Place of Business

Your home office should be your primary place for work. This means: 

✅ It’s where you perform most of your administrative or management tasks (even if you work at other locations).

✅ It’s a regular meeting space for clients, customers, or patients.

The IRS considers a home office your principal place of business if it’s where you handle essential tasks like scheduling, billing, or client communication.

📌 Also read: The Tax Benefits of Hiring Your Kids & Family Members In Your Business

Exclusive and Regular Use

To qualify, the space must be:

✅ Exclusively used for business — no personal activities in this area.

✅ Regularly used for work — not just occasionally.

📝 Important: The office doesn’t have to be a separate room, but it should be a clearly defined space dedicated to your business.

📌 Also read: Biggest Tax Deductions For Businesses

Key Takeaway

The home office tax deduction could help reduce your taxable income, but choosing the right method depends on your business needs and record-keeping preferences.

The Simplified Method is simpler while the Regular Method requires tracking actual expenses like mortgage, rent, and utilities.

No matter which method you choose, your workspace must be your principal place of business and used exclusively and regularly for work. 

If your expenses change each year, you can switch between methods, but only in different tax years.

If you’re unsure which method may be best for you, consider estimating both to see which one can offer the most potential savings.

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