As a business owner, finding ways to reduce taxable income is essential, and home office tax deductions can offer significant savings. However, to claim these deductions properly and avoid potential IRS audit risks, it’s crucial to understand the IRS rules.
In this guide, we’ll break down the two methods for claiming home office tax deductions—the actual expense method and the simplified method—and answer frequently asked questions to help you navigate the process.
Who Qualifies for Home Office Tax Deductions?
To qualify, part of your home must be used regularly and exclusively as your principal place of business. But even if your home isn’t your main office, you may still qualify if:
- You meet with patients, clients, or customers on your premises, or
- You use a storage area or separate free-standing structure (like a garage) exclusively and regularly for business purposes.
What Home Office Expenses Can You Deduct?
If you use the actual expense method, you can deduct:
- Direct expenses: Costs directly related to the office space, such as painting or carpeting.
- Indirect expenses: A proportionate share of mortgage interest, rent, property taxes, utilities, repairs, maintenance, and insurance.
- Security systems (if used for business).
- Depreciation of your home.
While the actual expense method can maximize your deduction, it requires meticulous recordkeeping.
The Simplified Home Office Deduction Method
For those who prefer an easier route, the simplified method allows you to deduct $5 per square foot of home office space, up to 300 square feet (maximum $1,500). Though convenient, this method may offer a smaller deduction compared to the actual expense method, especially for larger home offices.
Can You Switch Between Methods?
- Yes! You can switch methods each tax year based on what benefits you the most. For instance, use the actual expense method for 2024, switch to the simplified method for 2025, and go back to actual expenses for 2026. Flexibility lets you optimize your tax savings.
Selling Your Home? Know the Tax Implications
If you sell your home at a profit and previously claimed home office deductions, there may be tax consequences. It’s essential to understand how depreciation recapture and other factors might impact your tax bill. We can help clarify these details.
Also, remember that your home office deductions are subject to limitations based on the income generated from your business use of the home. If you can’t claim all expenses due to these limits, you can carry them forward to future tax years.
Do Employees Qualify for Home Office Deductions?
Unfortunately, under the Tax Cuts and Jobs Act, employees (those receiving W-2s) cannot claim home office deductions through 2025—even if they’re working from home due to employer requirements.
Get Expert Help with Home Office Tax Deductions
Home office tax deductions can offer substantial tax savings, but they must be claimed correctly. If you’re unsure which method is best for you or how to navigate the IRS rules, we’re here to help.
Contact us today to maximize your tax savings and ensure compliance.
© 2025
