Working-alone guide

The home office deduction: who qualifies and the two ways to figure it

Tax-year note: Tax information on this page applies to the 2026 tax year (returns filed in 2027), from IRS pages checked in November 2026. Figures and dates are labelled with their tax year where they appear. Check current IRS pages before you rely on them.

Many self-employed people work from home, and many assume that means a home office deduction. The deduction exists, but its tests are specific, and the way you figure it involves a real choice. This guide summarizes what the IRS says about qualifying and about the two methods. Figures are as published on IRS pages checked in November 2026 and are labelled for the 2026 tax year; confirm them in the current Publication 587 before you file.

Two tests come first

The IRS overview of the home office deduction lists two basic requirements, regardless of method:

1. Regular and exclusive use. You must regularly use part of your home exclusively for conducting business. The IRS example is an extra room used to run your business.
2. Principal place of your business. You must show you use your home as your principal place of business. The IRS adds that if you conduct business outside your home but also use your home substantially and regularly for business, you may still qualify, for example if you meet clients or customers there in the normal course of business.

The IRS also says a separate free-standing structure, such as a studio, garage or barn, can qualify if used exclusively and regularly for business, even if it is not your principal place of business.

And it is clear about the limit: if use of the home office is merely appropriate and helpful, you cannot deduct expenses for it.

Publication 587 describes exceptions to exclusive use, including storage of inventory or product samples and certain daycare use. Read it if your situation sounds like one of those.

Employees are different

The IRS simplified option page notes that taxpayers can no longer claim a home office deduction as an employee, because miscellaneous itemized deductions for employee business expenses were eliminated for tax years beginning after 2017. If you have a job and a separate self-employed activity, only the self-employed activity is relevant here.

The simplified option

For the 2026 tax year, as described on the IRS simplified option page:

• A standard deduction of $5 per square foot of home used for business, up to a maximum of 300 square feet (2026 tax year, per the IRS page checked November 2026).
• Allowable home-related itemized deductions, such as mortgage interest and real estate taxes, claimed in full on Schedule A.
• No depreciation deduction for the home, and no later recapture of depreciation for the years the simplified option is used.

The page adds that the deduction cannot exceed gross income from the business use of the home less business expenses, and that an amount over that limit cannot be carried over under the simplified option.

The regular method

Under the regular method, you figure actual expenses for the part of the home used for business. The IRS overview lists examples like mortgage interest, insurance, utilities, repairs and depreciation, and says the deduction is generally based on the percentage of your home devoted to business use. Form 8829 is required for self-employed people using this method.

The IRS comparison table notes some differences: the regular method includes depreciation for the business portion, with depreciation recapture on gain when the home is sold, and an amount over the gross income limit may be carried over.

Choosing between them

The IRS says you may choose either method for any tax year, and you choose by using that method on your timely filed original return. Once chosen for a year, you cannot change to the other method for that same year. If you use the simplified method one year and the regular method later, there are rules for figuring depreciation in the later year.

Practical considerations:

• Records. The simplified option needs the square footage and proof of qualifying use. The regular method needs records of actual home expenses.
• Size. The simplified option caps the space counted. A larger dedicated space may lead people to compare both.
• Future sale. Depreciation under the regular method can matter when you sell. Publication 587 explains.

Documenting the space

Whichever method you use, keep:

• a floor sketch with the work area measured;
• dated photos of the space set up for work;
• a short note on how it is used, and that it is not used for other purposes;
• for the regular method, utility bills, rent or mortgage interest statements, insurance and repair receipts.

Before you set up a workspace

Some routes in this directory need dedicated space for equipment, stock or client visits. Zoning and lease terms can matter for those, separate from tax. See licenses, permits and zoning at home. And before buying furniture or equipment with a deduction in mind, remember that a deduction reduces taxable income; it does not refund the purchase.

Rules here change; check the current Publication 587 for the year you are filing.