Home Office Deduction Requirements

 

If you are self-employed and have a home office, you might qualify to claim a home office deduction. This means you can deduct expenses for the business use of your home. To do so, both of these must apply:

  • You use the business part of your home exclusively and regularly for trade or business purposes. These uses of your home don’t qualify:
    • Voluntary
    • Occasional
    • Incidental
  • The business part of your home must be one of these:
    • Your main place of business
    • Place where you meet or deal with patients, clients, or customers in the normal course of your trade or business
    • Separate structure — not attached to the home — that you use in connection with your trade or business

Note: Before 2018, employees could deduct unreimbursed employee business expenses, including the home office deduction if eligible, as miscellaneous itemized deductions on Schedule A. For tax years 2018 through 2025, tax reform has eliminated the itemized deduction for employee business expenses. Thus, employees may not claim a home office deduction for these years.

Exclusive use
Exclusive use means you use a specific area of your home only for trade or business purposes. The exclusive-use area must meet these requirements:

  • A room or other separately identifiable space, but it doesn’t need to be marked off by a permanent partition
  • Not used at all for any personal purpose
  • Doesn’t contain personal-use furnishings

However, you don’t need to meet the exclusive-use test if one of these applies:

  • You use part of the home for the storage of inventory or product samples. Your home must be the only fixed location of the trade or business. You must use the storage area on a regular basis, and it must be suitable for storage.
  • You use part of the home as a daycare facility for:
    • Children
    • People physically or mentally unable to care for themselves
    • People age 65 or older

You must meet or be exempt from all state licensing or certification requirements. If you don’t meet the requirements or aren’t exempt from them, you must still meet the exclusive-use test.

Regular use
Regular use means you use part of the home on a continuous, ongoing, or recurring basis.

Principal place of business
You can have more than one business location for a single trade or business. However, if you deduct home office expenses, your home must be your principal place of business. These factors help you determine if your home office qualifies as a principal place of business:

  • Relative importance of the activities performed in each business location, like:
    • Meeting clients
    • Selling or delivering goods or services
  • Amount of time spent at each location

You can claim a home office deduction if both of these apply:

  • You use your home exclusively and regularly for administrative or management activities of your trade or business, and
  • There’s no other fixed location where you conduct substantial administrative or management activities of your trade or business.

Administrative or management activities include:

  • Billing customers, clients, or patients
  • Keeping books and records
  • Ordering supplies
  • Setting up appointments
  • Forwarding orders or writing reports
  • Phoning customers

These activities don’t disqualify a home office as the principal place of business:

  • You have others conduct administrative or management activities at locations other than your home. Ex: Another company does your billing from its place of business.
  • You conduct administrative or management activities at places that aren’t fixed locations of the business, like in a car or a hotel room.
  • You sometimes conduct minimal administrative or management activities at a fixed location outside your home.
  • You conduct a substantial amount of nonadministrative or nonmanagerial business activities at a fixed location outside your home:
  • You have suitable space to conduct administrative or management activities outside your home. However, you choose to use the home office for those activities.

More than one trade or business
If you work in more than one trade or business, follow IRS guidelines to find out if your home office is the principal place of business for each. See IRS Pub 587 , Business Use of Your Home, for more information.

A home office might be the main place of business for more than one activity. However, each activity you conducted in the office must meet all requirements for the deduction. Otherwise, you won’t meet the exclusive-use test for any activity.

Place to meet patients, clients, or customers
If you meet patients, clients, or customers in your home office in the normal course of business, your home office might qualify for a deduction. You must also meet the regular- and exclusive-use requirements.

What expenses are deductible?
Deductible home office expenses include:

  • Direct expenses to the business part of your home — like painting and repairs in the area you use for business
  • Business percentage of indirect expenses for maintaining and running your entire home. You can select any reasonable method for determining the business percentage of your home used for your business, and use the same method each year.  Indirect expenses could include:
    • Depreciation
    • Rent
    • Dwelling insurance
    • Utilities
    • Maintenance
    • General repairs

You can’t deduct expenses for landscaping or lawn care unless you show a business purpose. Ex: You’re in a lawn-care business, and you use your lawn as a display to potential clients.

Safe harbor home office deduction
This is a simplified method for figuring your home office deduction. If you choose to use this method, you cannot claim home office expenses using the regular method explained above. The simplified method doesn’t change who can claim it, but it does simplify your calculations and records.

Highlights of the safe harbor home office deduction:

  • Standard deduction of $5 per square foot of home used for business up to 300 square feet (with a maximum deduction of $1,500)
  • Allowable home-related itemized deductions you claim in full on Schedule A (Ex: mortgage interest and real estate taxes)
  • No home depreciation deduction or later recapture of depreciation for the years you use this method

To learn more, see the Home Office Safe Harbor tax tip.

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