Should I Claim a Home Office Deduction?

Some taxpayers can claim a break for the expenses involved with their home offices. Eligible taxpayers use their home office space “regularly and exclusively” for the purpose of their businesses, according to the Internal Revenue Service. This is the case for both deed holders and renters.

Although the deductible amount is limited, it’s worth knowing about these breaks if you’re working from home.

Do Not Pass “Go”: Rule It Out If You Get a W-2.

First, ask this threshold question. Were you a W-2 employee in 2024? Did a business withhold taxes for you? Then you can skip this article. You’re not eligible for a home office deduction. Even if you worked remotely most of the time.

You might recall that in the years leading up to 2018, W-2 employees could still claim deductions for unreimbursed home office expenses as miscellaneous itemized deductions.

But that tax break is gone through 2025, per the Trump tax changes made in 2017 through the Tax Cuts and Jobs Act.

Here’s one more do-not-pass-go factor, although it’s uncommon. If your business deductions apart from the home office add up to more than your gross business income, you can’t take the deduction for business use of the home.

It Doesn’t Have to Be an Entire Room. Or a Traditional Office.

The deduction for business use of the home doesn’t require a full room to be devoted to your contract work or your home-based business. But if you use only part of a room, make sure it’s used regularly for your work (or for business-related storage), and nothing else.

Same goes for using a separate structure on your property for work, like a garage, accessory cottage, barn, or pool house. Be sure to use that place exclusively and regularly as your workplace if you plan to take the deduction.

Your home is wherever you might live. It could be a freestanding house or a high-rise loft, a condo, boathouse, or manufactured home. You might have set up an office, a studio, or some other kind of workspace, but it can’t be multipurpose (unless your business is daycare).

In short, your home should be the main place you do business if you want to take the home office deduction.

Do you handle some of your business activities outside of home, yet use your home for business reasons? The home office tax deduction may be available for you to claim. The IRS looks at four “tests” to determine whether the tax break applies to your workspace: (1) exclusive, (2) regular (3) business use, and (4) use of the home office for the administrative activities of the business. We recommend sitting down with your tax pro to clarify any complicated aspects of the rule.

Here Are Some Common Expenses You May Deduct.

There are certain expenses you may fully deduct. The total mortgage interest amount you paid last year can be fully deducted from your taxable income.

Additional examples are:

• Insurance premiums.

• The cost of utilities and internet accounts.

• Upkeep and repair costs.

• Rental payments.

• Vehicle and fuel expenses, and other transit costs.

• Meals and entertainment expenses at meetings for business.

You may also take deductions for professional fees and professional education.

Here’s How to Claim the Home Office Tax Deduction.

First, if your workspace exists in your home, measure it so you know the percentage of the home’s square footage you dedicate to the business purpose before starting your tax return. That’s how you can calculate your costs for maintaining that particular space.   

When you’re ready, retrieve Form 1040, plus Schedule C, which lists various business-related deductions. To claim the home office deduction, retrieve Form 8829, Expenses for Business Use of Your Home (2024) in addition.

With the standard method of calculating the home office deduction, you’re reporting actual expenses.

You’ll deduct your actual expenses based on the percentage of your home used, such as part of your mortgage interest, insurance, utilities, devices, and technicians’ charges. This could also include depreciation (a loss of value over time).

There’s Also a “Simplified” Way to Report Business Use.

Alternatively, you can use the simplified method. With this option you’re deducting $5 per square foot of the area used as a work space, up to 300 square feet.

With the simplified method, you can take up to $1,500 off your taxes, and there is no need to report your actual expenses. The IRS states:

If you itemize deductions and use the simplified method for a taxable year, you can deduct expenses for the home that are otherwise deductible (for example, mortgage interest and property taxes) as itemized deductions on Form 1040 or 1040-SR, Schedule A, without reducing these expenses by the amounts allocable to the portion of the home used in a qualified business use.

If you need to account for depreciation, you can’t use the simplified method.

Your Mortgage Interest, If You Itemize, Could Maximize Your Tax Break. Maybe.

Most people do not itemize. The standard deduction is easier. And it could very well be more generous.

Look at Form 1098: Mortgage Interest Statement which your mortgage servicer sent at the beginning of this year. This is what you’ll write down on your Form 1040, Schedule A. Would the standard deduction be less than the sum of your itemized deductions? Then itemizing gets you a larger reduction.

What counts in that sum? Your state taxes, property taxes, and other local taxes as applicable, and the mortgage interest you paid last year. (If you’re a co-borrower on your home loan, only deduct the percentage you paid. All co-borrowers should do the same.)

You may deduct other mortgage expenses, too. These include late charges, fees and penalties, and private mortgage insurance premiums.

Learn more from the IRS itself, here.

Keep Your Receipts.

Keeping separate records and separate bank accounts is the best way to keep track of what portion of your household expenses pertain to your business use. Refer to your business account and the receipts spent from it. Save receipts for the unlikely event that you are selected to face a tax audit.

A small business or contractor facing an audit is even less likely this year due to mass layoffs at the IRS. But if you have concerns you could be audited, consult with your accountant.

Important note: Your own set of circumstances could make the IRS home business tax deduction complicated to figure out. Many people with home workspaces sit down with a tax pro, at least at the beginning of their home-based career, to learn the best ways to claim breaks without offending federal or state tax laws.