The home office deduction allows self-employed individuals and independent contractors to deduct a portion of home expenses attributable to a space used regularly and exclusively for business. Since TCJA eliminated miscellaneous itemized deductions, W-2 employees cannot deduct home office expenses at the federal level regardless of whether their employer requires them to work from home. This deduction is exclusively for the self-employed.
Who Qualifies
Self-employed (Schedule C): Eligible. Deduct on Form 8829, which flows to Schedule C.
Partners in a partnership: Eligible if the partnership does not reimburse. Deduct on Schedule E as unreimbursed partner expenses.
S-corp shareholders: Generally not eligible directly - the S-corp should reimburse under an accountable plan instead.
W-2 employees: Not eligible at the federal level. TCJA suspended the employee business expense deduction through 2025 (OBBBA did not restore it).
The Two-Part Test: Regular and Exclusive Use
IRC §280A requires the space to be used both regularly and exclusively for business. Both prongs must be met. "Regular" means on a consistent basis - not occasionally or incidentally. "Exclusive" is the harder requirement: the space must be used only for business. A home office that doubles as a guest bedroom fails the exclusive use test. A desk in a corner of the living room that is also used by the family fails. The IRS takes this literally - the space must be dedicated solely to business use.
The exclusive use test has no de minimis exception. If the family occasionally uses the computer in the home office for personal browsing, or stores personal items in the room, the deduction is technically disqualified. In practice, the IRS focuses on obvious dual-use situations (guest room, children's play space) rather than minor incidental personal use - but the standard is genuinely strict and the room should be dedicated space.
Simplified Method vs. Actual Expense Method
Under Rev. Proc. 2013-13, the simplified method allows a deduction of $5 per square foot of the home office space, up to 300 square feet - a maximum deduction of $1,500. No depreciation recapture later, no Form 8829, and no complex allocation. For small offices in high-cost housing markets, the actual expense method almost always produces a larger deduction.
The actual expense method allocates a percentage of all home expenses to the office based on square footage (office sq ft / total home sq ft). Deductible expenses include: rent (for renters), mortgage interest (as a business deduction, not itemized), real property taxes, utilities, home insurance, repairs, and depreciation of the home structure. Depreciation creates future recapture risk when the home is sold.
Home sale interaction: depreciation taken on a home office creates unrecaptured §1250 gain on sale - taxable at up to 25%. When you sell your primary residence, the §121 exclusion ($250K/$500K) does not cover the portion of gain attributable to depreciation taken on a home office. That portion is taxed as unrecaptured §1250 gain regardless of the §121 exclusion. For homeowners who have taken years of home office depreciation, this is a meaningful tax at sale. The simplified method eliminates this risk because no depreciation is claimed.
Authority: IRC §280A (disallowance of certain expenses in connection with business use of home; exceptions for regular and exclusive use in trade or business; principal place of business; meeting clients; separate structure; storage exception; deduction limitation - cannot exceed gross income from business); IRC §280A(c)(1) (regular and exclusive use test; principal place of business determination); IRC §280A(c)(5) (deduction limitation - home office deduction cannot create a net loss from the business; expenses must be allocated between business and personal portions); Rev. Proc. 2013-13 (optional simplified method - $5 per square foot; maximum 300 sq ft; $1,500 maximum deduction; no depreciation; no Form 8829; election made on timely filed return); IRC §1250 (unrecaptured §1250 gain on sale of depreciable real property; home office depreciation creates recapture not covered by §121 exclusion); Treas. Reg. §1.280A-2 (exclusive use requirement; regular use; principal place of business test); Form 8829 (Expenses for Business Use of Your Home; actual expense method computation; depreciation calculation; carryforward of disallowed expenses); IRS Publication 587 (Business Use of Your Home - comprehensive guide to home office deduction mechanics, simplified vs actual method comparison, recordkeeping requirements).