Working from home comes with its perks — no commute, more flexibility, and potential tax savings. One of the best tax breaks for small business owners and self-employed people in the United States is the home office deduction. But to take advantage of it, you need to follow the IRS rules carefully.
This guide will walk you through:
- who qualifies
- how to calculate the deduction
- which method to use
- the most important updates for the 2025 tax year.
Do I Qualify for the Home Office Tax Deduction?
You may qualify if:
- You’re self-employed or run a trade or business.
- You use a dedicated part of your home exclusively and regularly for business.
- That space is your principal place of business.
Even digital nomads or professionals who travel a lot may still qualify. This is true if their home office is the only fixed place they use for administrative work. Part-time side hustlers, like those with Etsy shops or online tutoring, often miss this deduction, when they ideally shouldn’t.
If you’re a small business owner working from home (even part-time) the deduction could apply to you. Learn more about what counts as a business deduction in our guide: Tax Deduction Tips for Small Business.
Exclusive and Regular Use
- Exclusive use means that space is used only for business — no personal activities allowed.
- Regular use means you use that space consistently, not occasionally.
For example, a guest bedroom turned into a home office might qualify. But your dining table likely won’t if you also use it for family meals.
Principal Place of Business
Your home office must be the main location where you conduct your business. Even if you perform some work at other locations, the home office still qualifies. For example, if it’s where you manage your operations, handle billing, or meet with clients.
If I’m an Employee Working from Home, Do I Qualify?
Unfortunately, no. Under current federal tax law (TCJA), employees working remotely cannot claim a home office deduction. Unless in the case they are self-employed. This is true even if your employer requires you to work from home.
If I’m Self-Employed, Should I Take the Home Office Tax Deduction?
Yes — if you meet the criteria. Many freelancers, independent contractors, and sole proprietors are eligible and may be able to reduce their federal taxes significantly.
If you’re self-employed, make sure your home office meets the “exclusive and regular use” and “principal place of business” standards.
You’ll also need to report your expenses on Schedule C of your tax return. Learn how in: Schedule C Filing: A Step-by-Step Guide for Independent Contractors.
What Is “Exclusive Use”?
Exclusive use means a specific part of your home is used only for your business. You don’t need to have a separate room. A partitioned area or corner may work as long as it’s not used for any personal activities.
If you set up a desk in your living room, it might qualify. This counts if your family does not use that space for anything else. But if you occasionally eat dinner there or let the kids do homework, it doesn’t meet the standard.
What Is “Regular Use”?
The space must be used on a regular basis to qualify. Occasional or sporadic use won’t cut it.
No specific number of hours is needed. However, if you work there a few times each week, that usually counts.
What Does “Principal Place of Business” Mean?
The IRS considers a home office your principal place of business if you:
- Conduct administrative or management tasks there
- Meet clients or customers at your home
- Have no other fixed location where substantial business activities occur
Even if you do some work outside the home, your home office can still qualify.
What If My Business Has Just One Home Office, But I Do Most of my Work Elsewhere?
You can still qualify for the deduction if you use your home office for administrative tasks. This includes scheduling, recordkeeping, or managing projects, and you have no other fixed location for this work.
Learn more about managing work across multiple locations in: Multi-State Income: Tax Considerations When Working Across State Lines.
What Qualifies as a Business?
According to the IRS, your activity must be:
- Carried out for a business purpose
- Aimed at generating income or profit
Freelancers, consultants, online sellers, and gig workers often qualify. However, if the IRS deems your activity a hobby, the deduction won’t apply.
What If I Operate a Childcare or Storage Facility?
You don’t need exclusive use if you run:
- A licensed daycare or childcare business
- A storage facility for inventory or product samples
However, you still need to:
- Use the space regularly for business
- Meet all relevant state and federal licensing requirements (especially for daycare)
- Demonstrate that the use aligns with your trade or business
For childcare, IRS Publication 587 requires you to maintain detailed records of hours, enrolled children, and business-related expenses. Only areas used for product or inventory storage will qualify for storage. These areas should not be easily changed for personal use.
How Do I Calculate the Home Office Tax Deduction?
There are two ways to calculate the deduction:
1. Simplified Square Footage Method
- Deduct $5 per square foot of space used for business
- Maximum of 300 square feet allowed
- Max deduction = $1,500 per year
This method is best for those who want ease of use, and don’t need to itemize.
2. Regular Method
This involves tracking actual expenses and calculating the percentage of your home used for business. Deductible expenses may include:
- Mortgage interest or rent
- Utilities (electricity, water, internet)
- Insurance
- Maintenance and repairs
- Property taxes
- Depreciation (if you own the home)
Direct expenses are costs specific to the office (e.g., repairs to your office wall). Indirect expenses are shared costs (e.g., utilities or rent) prorated based on office size.
Example: If your home is 2,000 square feet and your office is 200 square feet, you can deduct 10% of your qualifying indirect expenses.
Top Tip: Keep accurate records using invoicing or project management tools like Invoice Fly. This makes filing easier and defends your deduction if audited.
Which Method Should I Use to Calculate My Home Office Deduction?
Choosing between methods depends on your expense level and how much time you want to spend tracking details.
| Feature | Simplified Method | Regular Method |
| Max Deduction | $1,500 | No limit (based on % and expenses) |
| Recordkeeping | Minimal | Detailed records required |
| Best For | Small spaces, low expenses | High-expense areas, larger offices |
| IRS Form Required | Schedule C only | Schedule C + Form 8829 |
Use the simplified option if:
- Your space is small (under 300 square feet)
- You want fewer calculations and less documentation
Use the regular method if:
- You have high expenses (especially in high-rent areas)
- Your office takes up a large percentage of your home
Top Tip: Use a tax professional to help you weigh the pros and cons of each.
Knowing how and when to apply the home office tax deduction can save you hundreds (or thousands) in federal taxes. Make sure your space meets IRS requirements, choose the right calculation method, and track your home office expense details with care.
Learn how to automate and streamline your taxes with tools built for small business owners. Start with: What Percentage of Income Should Small Businesses Set Aside for Taxes?
Make It Easier with Invoice Fly
Tracking business expenses and maximizing deductions is easier when you’re organized. With Invoice Fly’s Invoice Maker, you can:
- Track and categorize deductible expenses
- Create professional invoices quickly
- Save recurring items and project notes
- Access financial summaries to prepare for tax time
Organize your workflow and reduce stress before your next tax filing.
