If you are self-employed and you have a space in your home used only for business, on a regular basis, you can deduct part of your home costs. You choose between a simplified flat rate of $5 per square foot (capped at 300 square feet, so $1,500) and the regular method, which deducts a percentage of your actual home expenses. W-2 employees cannot claim it on their federal return, no matter how much they work from home.
That is the whole deduction in three sentences. The rest is the detail that decides whether you get it, how much you get, and what it costs you later.
Who can claim it
Sole proprietors, single-member LLC owners, and independent contractors who file Schedule C are the core group. Two groups need a closer look.
Partners. You are not automatically eligible. A partner can deduct unreimbursed home office expenses on Schedule E only if the partnership agreement requires the partner to pay those costs without reimbursement. If the agreement is silent, the deduction is disallowed entirely. Partners also do not file Form 8829 — they use the worksheets in IRS Publication 587.
Employees. W-2 employees are out. The exception is statutory employees, who file Schedule C and can claim it.
If you are taxed as an S corporation, skip to the S corp section below. The path is different.
The tests your space has to pass
Exclusive use. The space is used only for business. A spare bedroom that doubles as a guest room fails. The dining table where you answer email fails. It does not have to be a whole room, but it does have to be a separately identifiable space with no personal use.
Two statutory exceptions waive exclusive use entirely:
- A licensed (or license-exempt) daycare business run out of your home.
- A separately identifiable space used to store inventory or product samples, where your home is your only fixed business location.
Also worth knowing: failing exclusive use disqualifies that space, not your whole claim. If your den fails but the detached studio in the back qualifies, you still deduct the studio.
Regular use. There is no days-per-week bright line, whatever you have read. The IRS standard is that incidental or occasional use is not regular use. It is a facts-and-circumstances test. "I work from home three days a week" does not qualify anything on its own — and most people who say it are hybrid W-2 employees who cannot claim the deduction at all.
Plus one of these three. The space must also be your principal place of business (including where you do your administrative and management work, if you have no other fixed location for it), a place where you regularly meet clients or customers, or a separate structure on the property used only for business.
The two methods
You can switch methods from year to year. What you cannot do is change your mind for a year you have already elected — the choice is irrevocable for that tax year, even on an amended return. Run both before you file.
| Simplified method | Regular method | |
|---|---|---|
| Rate | $5 per square foot | Business-use % × actual home expenses |
| Ceiling | 300 sq ft, so $1,500 | No square-foot or dollar ceiling, but capped by the gross income limit |
| Form | Schedule C only | Form 8829 (Schedule C filers) |
| Depreciation | Not claimed | Claimed annually, recaptured on sale |
| Mortgage interest / property tax | Claimed in full on Schedule A | Business share on Form 8829, personal share to Schedule A |
| Carryover of disallowed amount | None | Carries to next year, usable only in a regular-method year |
| Records | Minimal | Extensive |
| Usually better for | Small offices, renters, lower home costs | Larger offices, high home costs, homeowners |
Simplified method at $5/sq ft: 100 sq ft = $500. 150 = $750. 200 = $1,000. 250 = $1,250. 300 = $1,500, and that is the cap regardless of how big the office actually is.
Worked illustration. Say you run a bookkeeping practice from a 200-square-foot dedicated office in an 1,800-square-foot Orlando house, with $28,000 of qualifying home costs for the year. Business use is 11.1%. The simplified method gives you $1,000. The regular method gives you about $3,111 — more than three times as much, in exchange for keeping receipts and filing Form 8829.
One more calculation option most people miss: square footage is not the only accepted way to find your business-use percentage. If all the rooms in your home are about the same size, you may divide rooms used for business by total rooms. That often produces a larger percentage.
What the regular method actually covers
Homeowners allocate mortgage interest, real estate taxes, homeowners insurance, utilities, casualty losses, repairs and maintenance, and depreciation. Renters allocate rent, renters insurance, and utilities.
Three things that trip people up:
- Improvements are not currently deductible. A new roof, a new HVAC system, or an office build-out is a capital improvement. You add it to basis and recover it through depreciation over 39 years. Nothing about a home office makes an improvement "100% deductible" this year. Only repairs and maintenance are deducted currently.
- Internet is not a square-footage expense. Deduct the business-use percentage of the service itself, as a regular Schedule C expense. Basic local telephone service on your first home line is a personal expense and is not deductible at all.
- The personal half of mortgage interest and property tax goes to Schedule A, where it competes with the standard deduction and runs into the SALT cap. If you take the standard deduction, that portion delivers nothing. Your real incremental benefit is often smaller than the headline number.
The income limit, and where the leftover goes
Your home office deduction cannot exceed the gross income from the business use of your home, reduced by business deductions unrelated to the home. In a simple one-location Schedule C, that lands close to net profit. It matters when you have multiple locations or large non-home expenses. Either way, it cannot create or increase a loss.
What happens to the disallowed amount depends entirely on which method you used, and this is where most articles are flatly wrong:
- Simplified method: there is no carryover. Amounts above the limit are gone. And a carryover from an earlier year cannot be claimed in a simplified-method year.
- Regular method: the disallowed amount carries to the next year, subject to that year's limit, and can only be deducted in a year you again use the regular method.
So a carryover generated under the regular method is suspended, not destroyed, during any simplified-method year. It sits and waits. If you never go back to the regular method, you never use it.
Depreciation: the bill that arrives later
Under the regular method you depreciate the business portion of your home over 39 years. When you sell, depreciation allowed or allowable after May 6, 1997 is treated as unrecaptured section 1250 gain and taxed at a maximum rate of 25%. If your ordinary rate is 12% or 22%, you pay your lower rate, not a flat 25%. It is not the disaster it is usually described as, but it is real, and the section 121 home-sale exclusion does not cover it.
Switching to the simplified method does not erase this. Depreciation you already claimed in earlier regular-method years still gets recaptured.
If you are an S corporation
You cannot take a home office deduction on Schedule C, because your business income is not on Schedule C. The clean route is an accountable plan: the S corp adopts a written reimbursement policy, you submit documented home office costs, and the company reimburses you. The reimbursement is deductible to the company and is not taxable income to you, so it never touches payroll tax. Set the plan up in writing before you start reimbursing.
What this means in Florida
Florida has no personal income tax, so every dollar of this deduction is federal. In a high-tax state the same deduction would also reduce state tax — the Florida advantage is that you were never paying that state tax in the first place, not that the federal deduction is somehow worth more here. Ignore anyone who tells you otherwise.
The federal saving is still bigger than most people assume. A home office deduction on Schedule C reduces net self-employment earnings, so it cuts self-employment tax (15.3%, effectively about 14.13% after the deduction for one-half of SE tax) on top of income tax. For a sole proprietor in the 22% bracket, a $1,500 deduction is worth roughly $540, not $330. If you claim the qualified business income deduction, a smaller QBI base takes back a little of that.
Hurricane season is genuinely relevant here. Casualty losses are a Form 8829 line item, and the business share is handled differently from the personal share. Photograph and measure your office space before storm season, not after. Those photos also happen to be the best evidence you have for the exclusive use test.
Non-resident founders
If you formed a U.S. company and live abroad, the home office deduction as described here generally does not apply to you — it is a deduction on a U.S. individual return against U.S. trade or business income. For a founder outside the U.S. with a C corporation, the workable mechanism is usually an accountable plan reimbursement, and the treatment of that reimbursement depends on your own country's rules. Get this looked at before you book anything.
Mistakes that actually cost people the deduction
- Claiming a space with any personal use in it.
- Estimating square footage instead of measuring it.
- Expensing an improvement that should have been capitalized.
- Assuming a carryover survives a simplified-method year.
- Deducting internet by square footage.
- Failing to document the exclusive use test. Utility bills are easy. What fails on examination is proving the room was only ever used for business — so keep a floor plan, dated photos, and your measurements.
What to do next
- Measure the space. Length times width, written down.
- Be honest about exclusive use. If there is a guest bed or a Peloton in there, fix the room or drop the claim.
- Pull twelve months of utility bills, your Form 1098, property tax records, and insurance statements.
- Run both methods. Do it every year — the answer changes when your home costs or your profit change.
- If you are an S corp, get an accountable plan in writing.
- If you have ever claimed depreciation and you might sell, model the recapture before you decide anything.
If you are running a business in Orlando, Jacksonville, or Miami and you are not sure which method fits your situation — or you took the simplified method for years and want to know whether switching is worth it — contact Accounting BOSS. We work with small business owners and founders, and we will tell you plainly what you are entitled to claim.
This article is general information, not tax advice for your situation. Rules change and facts matter.
This is general information, not tax advice for your situation, and reading it does not make you a client. Rules and figures change — verify anything time-sensitive before you act on it. We'll talk it through with you free.
Common questions
No. Employees cannot claim the home office deduction on their federal return, even if they work from home full time and their employer provides no office. The one exception is statutory employees, who file Schedule C and can claim it. If you are a hybrid or remote employee receiving a W-2, this deduction is not available to you.
No, but it has to be a separately identifiable space used only for business. A partitioned corner of a room can qualify. What disqualifies a space is personal use, not the absence of a door. There are two exceptions where exclusive use is not required at all: a licensed home daycare business, and a space used to store inventory or product samples when your home is your only fixed business location.
It depends on the method. Under the simplified method there is no carryover at all — the excess is lost, and prior-year carryovers cannot be used in a simplified-method year either. Under the regular method, the disallowed amount carries to the next year, subject to that year's limit, and can only be deducted in a year you use the regular method again. A carryover is suspended, not lost, during simplified-method years.
Only if you claimed depreciation, which means only under the regular method. Depreciation allowed or allowable after May 6, 1997 is treated as unrecaptured section 1250 gain and taxed at a maximum rate of 25% — lower if your ordinary rate is lower. The home-sale exclusion does not cover it. Switching to the simplified method later does not erase depreciation you already claimed.
Not on Schedule C. The S corp adopts a written accountable plan, you submit documented home office expenses, and the company reimburses you. The reimbursement is deductible to the company and tax-free to you, and it does not run through payroll, so no payroll tax applies. The plan needs to be in place in writing before the reimbursements start.
Yes, year to year. But the election for a given tax year is irrevocable — once you file using one method for that year, you cannot change it, even on an amended return. Run both calculations before you file, not after.