If you use part of your home regularly and exclusively for your business, you can deduct part of your housing costs. There are two ways to figure the deduction. The simplified method is a flat $5 per square foot, up to 300 square feet, so it tops out at $1,500. The regular method deducts the business percentage of your actual rent or mortgage-related costs, utilities and insurance, and has no fixed cap. Both are described by the IRS. The simplified method is easier. For renters especially, the regular method is often worth several times more.
Who qualifies
Both methods have the same eligibility test. According to Publication 587, you need a specific part of your home that you use:
- Exclusively for your business. Occasional personal use disqualifies it.
- Regularly, not just now and then.
- And as your principal place of business, or as a place where you regularly meet clients or customers, or in a separate structure (like a detached studio) used for the business.
A home office can count as your principal place of business even if you do much of the actual work elsewhere. That applies when you use it for your administrative or management work (billing, scheduling, bookkeeping) and have no other fixed location where you do much of that work.
This is a deduction for your own business. As an employee, you can’t claim it: the IRS notes that employee home office deductions ended for tax years beginning after 2017.
The two methods side by side
| Simplified | Regular | |
|---|---|---|
| Who qualifies | Exclusive, regular business use | Same |
| How it's figured | $5 × square feet used (max 300) | Business % of your home × actual expenses |
| Maximum | $1,500 | No fixed cap |
| Mortgage interest, property taxes | Claimed in full on Schedule A (if you itemize) | Split between Schedule A and your business schedule |
| Depreciation | None, and no recapture when you sell | Business part deductible; recaptured on sale |
| Over the income limit | Lost, with no carryover | Carried over to next year |
| Paperwork | Just the square footage | Form 8829 and records of every expense |
- Who qualifies
- SimplifiedExclusive, regular business useRegularSame
- How it's figured
- Simplified$5 × square feet used (max 300)RegularBusiness % of your home × actual expenses
- Maximum
- Simplified$1,500RegularNo fixed cap
- Mortgage interest, property taxes
- SimplifiedClaimed in full on Schedule A (if you itemize)RegularSplit between Schedule A and your business schedule
- Depreciation
- SimplifiedNone, and no recapture when you sellRegularBusiness part deductible; recaptured on sale
- Over the income limit
- SimplifiedLost, with no carryoverRegularCarried over to next year
- Paperwork
- SimplifiedJust the square footageRegularForm 8829 and records of every expense
Source: IRS, Simplified option for home office deduction (comparison of methods) and Publication 587 (2025).
Simplified method
Multiply the square footage of your qualifying office by $5, using at most 300 square feet. A 200-square-foot office gives $1,000, and a 350-square-foot office is capped at 300 × $5 = $1,500. The rate comes from Rev. Proc. 2013-13, and the latest Publication 587 (the 2025 edition) still uses $5.
What you give up, per Publication 587:
- No depreciation on the business part of your home for that year, and no depreciation recapture later for those years.
- No actual expenses tied to the home: rent, utilities, insurance and repairs all go unclaimed. Business expenses that aren’t about the home, like software or equipment, are still deductible as usual.
- No carryover. If the deduction is limited by your business income, the excess is lost.
Regular method (actual expenses)
You figure your business percentage: the office’s area divided by your home’s total area. A 200-square-foot office in a 1,000-square-foot apartment is 20%. You then apply that percentage to your indirect expenses, the costs of running the whole home, such as rent, utilities, homeowner’s or renter’s insurance and general repairs. Direct expenses for the office alone, like painting just that room, are deductible in full. If you own the home, you can also depreciate the business part of it, over 39 years as nonresidential real property. That depreciation is recaptured when you sell.
Sole proprietors figure the regular method on Form 8829 and carry the result to Schedule C, line 30.
The income limit applies to both
Your home office deduction can’t exceed the gross income from the business use of your home minus your other business expenses. For most freelancers with a profitable year, this doesn’t bite. In a loss year, it does. Under the regular method, the excess carries over to the next year. Under the simplified method, it’s gone.
Worked example: a freelancer who rents
You rent a 1,000-square-foot apartment and use a 200-square-foot spare room exclusively as your office, so your business percentage is 20%. Over 2026 you pay $24,000 in rent, $2,400 in utilities and $240 for renter’s insurance. Your freelance business is comfortably profitable, so the income limit doesn’t apply.
- Simplified method$1,000
200 sq ft × $5
- Regular methodLarger deduction$5,328
20% × ($24,000 rent + $2,400 utilities + $240 insurance) = 20% × $26,640
Illustrative figures. Assumes the office meets the exclusive and regular use tests and business income exceeds the deduction.
In this case, the regular method is worth $5,328, more than five times the simplified method’s $1,000. Because it’s a Schedule C deduction, it lowers your net profit, which reduces your self-employment tax as well as your income tax.
A quick way to tell which method wins
For an office of up to 300 square feet, the arithmetic is simple. The regular method gives you more whenever your yearly indirect home costs exceed $5 per square foot of your whole home. That’s our shortcut, derived from the two formulas, not an IRS rule. For a 1,000-square-foot home, the break-even point is $5,000 a year, or about $417 a month in combined rent (or deductible homeowner costs), utilities and insurance. Most renters clear that easily.
Homeowners have more to weigh. Mortgage interest and property taxes are often deductible on Schedule A anyway if you itemize. The regular method’s depreciation also comes back as recapture when you sell. That’s why some owners pick the simplified method even when the regular method looks bigger on paper. You can choose again each year.
Bottom line
If you have a genuinely exclusive workspace, run both numbers. The simplified method caps out at $1,500 but takes five minutes. The regular method takes Form 8829 and receipts, and for a renter it’s often worth several thousand dollars more. Whichever you choose, the deduction lowers your Schedule C profit, and with it your quarterly estimated payments.