Want the full IRS Pub 587 walkthrough, the regular and exclusive use rules, the §280A(c)(5) gross income limitation mechanics, Form 8829 line-by-line, the daycare and inventory storage exceptions, and the depreciation recapture trap on home sale? Read the companion guide.
Read the Home Office Deduction Guide →
Short Answer
The 2026 home office deduction comes in two flavors. The simplified method under Revenue Procedure 2013-13 allows $5 per square foot of qualified business-use space, capped at 300 square feet and $1,500 per year, with zero depreciation (and therefore no later recapture under §1250 at sale) - claim it directly on Schedule C line 30 without Form 8829. The regular method under IRC §280A multiplies actual home expenses (mortgage interest, real estate taxes, insurance, utilities, repairs, and depreciation) by the business-use percentage (office square footage divided by total home square footage), reported on Form 8829 and flowed to Schedule C line 30. Both methods require regular and exclusive use of the office space and the home as principal place of business (or as a meeting place with clients, or a separate free-standing structure). The §280A(c)(5) gross income limitation caps the deduction at gross income from the home-office-related business minus other business deductions. W-2 employees are permanently disallowed from claiming the deduction under OBBBA §70110 - the proper response is to negotiate an accountable plan reimbursement from the employer.
Key Takeaways
- Simplified method (Rev. Proc. 2013-13): $5 per sq ft, max 300 sq ft, $1,500 cap. No depreciation, no recapture. Mortgage interest and real estate taxes stay 100% on Schedule A.
- Regular method (IRC §280A, Form 8829): business-use % of indirect expenses plus 100% of direct office expenses. Depreciation allowed (39-year SL); recaptured at §1250 25% rate at sale.
- Two basic tests under §280A(c)(1): (1) Regular and exclusive use - personal use of the same space defeats exclusivity. (2) Principal place of business OR meeting place for clients OR separate free-standing structure.
- §280A(c)(1)(A) admin/management safe harbor: home qualifies as principal place of business if you use it substantially and regularly for admin/management AND have no other fixed location where you do those activities.
- §280A(c)(5) gross income limitation: deduction cannot create or increase a Schedule C loss. Regular method excess carries forward; simplified method excess is lost forever.
- OBBBA §70110 permanently disallows home office deduction for W-2 employees outside the four above-the-line §62(a)(2) categories (reservists, fee-basis officials, performing artists, eligible educators).
- Daycare providers (§280A(c)(4)) use time-and-space allocation - exclusive use is NOT required, but a daycare-specific business-use formula applies.
- Inventory storage (§280A(c)(2)) does NOT require exclusive use - retailers and wholesalers using the dwelling as the sole fixed location may deduct allocable storage space.
- Separate free-standing structure (§280A(c)(1)(C)) bypasses the principal-place-of-business test - studio, garage, barn, ADU qualifies if used exclusively and regularly for business.
- S-corp shareholders use an accountable plan reimbursement (Treas. Reg. §1.62-2), not a personal Schedule C deduction.
How This Calculator Works
Step 1 - Confirm the two basic tests under §280A(c)(1)
The home office area must be used regularly and exclusively for business. Personal or family use of the same area at any point during the year defeats exclusivity and disqualifies the deduction. The home must also be your principal place of business - either because the home is where the income-producing activity primarily occurs, because it is where you meet clients in the normal course of business, because it is a separate free-standing structure used for business, or because you use it substantially and regularly for administrative and management activities of the trade or business and have no other fixed location for those activities (the §280A(c)(1)(A) safe harbor enacted in response to Soliman v. Commissioner, 506 U.S. 168 (1993)).
Step 2 - Pick simplified or regular method
The simplified method (Rev. Proc. 2013-13) multiplies the office square footage (capped at 300) by $5 per square foot, for a maximum simplified deduction of $1,500. No depreciation is claimed and no Form 8829 is filed - the result goes directly to Schedule C line 30 (or the equivalent Schedule F line 32, Form 2106 line 4 for the four above-the-line categories). The regular method on Form 8829 multiplies the business-use percentage (office sq ft / total home sq ft, or office rooms / total rooms of approximately equal size) by indirect home expenses, plus 100 percent of direct office-only expenses. Indirect expenses include mortgage interest, real estate taxes, homeowner's insurance, utilities, rent (for renters), repairs, and depreciation of the home.
Step 3 - Apply the OBBBA §70110 W-2 employee disallowance
If you are a W-2 employee (not self-employed under Schedule C, F, or partnership K-1), the home office deduction is permanently disallowed under OBBBA §70110, which made the TCJA-era suspension of all §67 misc itemized deductions permanent. The narrow above-the-line exceptions in §62(a)(2) (reservists, fee-basis officials, qualified performing artists, eligible educators) do not include a home office adjustment. The proper W-2 path is an accountable plan reimbursement from the employer under Treas. Reg. §1.62-2: the employee submits a substantiated home office expense report (square footage, allocable expenses) and the employer reimburses tax-free.
Step 4 - Apply the §280A(c)(5) gross income limitation
The home office deduction cannot create or increase a Schedule C loss. The cap equals gross income from the home-office-related business minus other business deductions (supplies, advertising, vehicle, contract labor, etc.). The calculator computes this limit from the "gross income before home office" input. Under the regular method, expenses above the limit are carried forward indefinitely and can offset future home-office-related gross income (subject to the same cap each carryover year). Under the simplified method, excess is NOT carried forward and is permanently lost - one of the simplified method's drawbacks for low-income years.
Step 5 - Compute tax savings and surface depreciation recapture
The deduction reduces federal income tax at the marginal rate. For Schedule C / Schedule F filers, the deduction also reduces self-employment tax at approximately 14.13 percent of net SE earnings (92.35 percent x 15.3 percent), up to the 2026 SS wage base of $184,500. Under the regular method, the home depreciation portion cumulatively reduces home basis and is recaptured as unrecaptured §1250 gain (taxed at up to 25 percent) when the home is sold - even if the §121 home sale exclusion applies. The simplified method assigns zero depreciation and triggers no recapture, which is a significant non-obvious advantage for taxpayers planning to sell within a few years.
Worked Example: Freelance Designer with 200 Sq Ft Home Office, $60,000 Net Income
Elena is a self-employed graphic designer filing Schedule C. In 2026 she works out of a dedicated 200 square foot home office in her 2,000 square foot Denver house (10% business use). Her gross Schedule C income before the home office deduction is $60,000. Indirect home expenses for the year: $12,000 mortgage interest, $6,000 real estate taxes, $1,800 homeowner's insurance, $4,200 utilities, $1,500 repairs, $2,300 home depreciation (39-year SL on $89,700 building basis). Her marginal federal rate is 22 percent.
Inputs
Tax year2026
Filer statusSelf-employed (Schedule C)
Office sq ft200
Total home sq ft2,000
Business-use percentage10.0%
Schedule C gross income (before home office)$60,000
Simplified Method (Rev. Proc. 2013-13)
Office sq ft (capped at 300)200
× $5 per sq ft$5.00
= Simplified deduction$1,000
Mortgage interest + RE taxes (full)$18,000 on Sch A
Home depreciation (basis impact)$0 (no recapture)
Regular Method (Form 8829)
Mortgage interest x 10%$1,200
Real estate taxes x 10%$600
Insurance x 10%$180
Utilities x 10%$420
Repairs x 10%$150
Depreciation x 10%$230
= Regular method deduction$2,780
Mortgage interest + RE taxes (90% remaining)$16,200 on Sch A
Result on Schedule C Line 30
Simplified method$1,000
Regular method (higher)$2,780
Gross income limit (§280A(c)(5))$60,000 (not binding)
Recommended methodRegular
Federal income tax savings (22% rate)$612
SE tax savings (14.13% on net SE)$393
Combined federal tax savings$1,005
Why regular wins for Elena: Her actual indirect home expenses (allocable to 10% business use) total $2,780 - well above the $1,000 simplified result. The regular method captures her actual cost. The tradeoff: she takes $230 of home depreciation that reduces her home's basis cumulatively; when she sells, that depreciation is recaptured at up to 25% under §1250 (not sheltered by §121 even if the rest of the gain is). Over a 10-year holding period, cumulative depreciation could reach $2,300; the recapture tax at sale could be $575 (25%). Net 10-year value of regular over simplified: ($2,780 - $1,000) x 10 years x (22% + 14.13%) - $575 = $5,861.
The depreciation recapture trap: Some self-employed taxpayers skip the home office deduction entirely to "avoid recapture." This is a mistake. Per IRS Pub 587, depreciation that could have been claimed is recaptured under §1250 whether or not it was actually claimed (the "allowed or allowable" rule). Skipping the deduction does not avoid the recapture; it just forfeits the current-year benefit. The correct response is to claim the deduction every year you qualify (or use the simplified method to avoid creating depreciation entirely if the regular method benefit is marginal).
Quick Facts: 2026 Home Office Deduction
Simplified Method vs Regular Method Comparison
| Feature |
Simplified Method |
Regular Method |
| Statutory basis | Rev. Proc. 2013-13 | IRC §280A; Form 8829 |
| Rate / calculation | $5 per sq ft | Business-use % × actual expenses |
| Maximum deduction | $1,500 (300 sq ft cap) | No fixed cap; gross income limit applies |
| Form required | None (direct to Sch C line 30) | Form 8829 |
| Depreciation deduction | None (zero) | 39-year SL on building basis × business % |
| Depreciation recapture at sale | None | §1250 unrecaptured gain at 25% max |
| Mortgage interest + RE taxes | Full on Schedule A | Business % on Form 8829; remainder on Sch A |
| Gross income limit excess | NOT carried forward (lost) | Carried forward indefinitely |
| Multiple homes in same year | One home only | Any number of qualifying homes |
| Recordkeeping burden | Square footage + business test | All home expense receipts + basis records |
| Switch year-to-year | Permitted | Permitted |
Where the Home Office Deduction Is Claimed on the 2026 Return
| Filer / Method |
Form / Schedule |
Line |
Limit |
| Self-employed - Simplified | Schedule C | Line 30 (with simplified method box marked) | $1,500 max; §280A(c)(5) gross income limit |
| Self-employed - Regular | Form 8829 + Schedule C | Schedule C line 30 (after Form 8829) | §280A(c)(5) gross income limit; excess carries |
| Farmer - Either method | Schedule F | Line 32 (other expenses) | Same §280A(c)(5) gross income limit |
| Partner (UPE) | Schedule E Part II | Unreimbursed partnership expense line | Partnership agreement must require partner to pay; basis limits |
| S-corp shareholder-employee | Accountable plan reimbursement | (Excluded from W-2 wages under §1.62-2) | $0 personal Sch C; corp deducts the reimbursement |
| Daycare provider | Form 8829 + Schedule C | Time-and-space allocation per §280A(c)(4) | Same gross income limit |
| W-2 employee (other than 4 categories) | (no deduction) | OBBBA §70110 permanent disallowance | $0 - seek accountable plan reimbursement |
Practitioner Insight
The single most expensive home office error I see at intake is the self-employed client who has been claiming the regular method for ten years, taking the depreciation deduction without keeping a basis worksheet, then panics when they list the home for sale and discover the "allowed or allowable" rule under §1250. The IRS recaptures the depreciation whether or not the taxpayer kept records of it - and without records, the recomputed depreciation often turns out to be higher than what was actually taken (because the taxpayer used inconsistent business-use percentages year-to-year that, on retrospective examination, average to a higher mid-range number). The fix is a vehicle-style annual basis worksheet that tracks: starting basis (cost of home minus land), accumulated depreciation by year (business-use % times $building basis ÷ 39), and ending basis. A $400,000 home with $80,000 land basis, 15% business-use, claimed for 8 years before sale, generates $400 of annual depreciation x 8 = $3,200 of recapture at 25% = $800 tax. Trivial if anticipated; embarrassing at intake. The second most expensive error is the simplified-method evangelist who switched from regular to simplified five years ago to "avoid depreciation recapture" - and now has $5,000 of cumulative pre-switch depreciation still buried in the basis that WILL be recaptured at sale despite the switch. The simplified method does not erase pre-switch depreciation; it just adds zero new depreciation going forward. Track the pre-switch cumulative number on the workpaper or it gets "rediscovered" by the IRS at examination.
Real-World Scenario: Etsy Seller in Year 3 of Inventory-Storage Garage Use
Marisol is a self-employed handcrafted-jewelry seller on Etsy, filing Schedule C. Her dwelling is a 1,800 sq ft townhouse in Phoenix. The garage (400 sq ft, separately identifiable from the dwelling interior) is used for inventory storage, packing, and product sample staging - she stores raw materials, finished inventory, packaging supplies, and shipping equipment there year-round. The garage also holds her car (which she parks on the driveway when she needs full garage access for shipping days). She does NOT use the garage exclusively for inventory - the car is parked inside roughly half the year. Total 2026 indirect home expenses: $14,400 mortgage interest, $4,800 property taxes, $2,400 insurance, $3,000 utilities. Schedule C gross income: $42,000. Marginal federal rate: 22%.
Why §280A(c)(2) inventory storage exception applies: Marisol's principal trade or business is the retail sale of products (handcrafted jewelry). The garage is used regularly for inventory storage. Her dwelling is the sole fixed location of the business (no separate warehouse or store). Under §280A(c)(2), the inventory-storage exception applies and the garage does NOT have to be used exclusively for storage - the alternating car-vs-shipping use is acceptable. This is a narrow exception that retailers and wholesalers can use; service businesses and consultants cannot.
Computation under regular method: Business-use percentage = 400 sq ft / 2,200 sq ft (1,800 dwelling + 400 garage) = 18.2%. Total indirect expenses $24,600 x 18.2% = $4,477. Plus direct expenses (garage shelving $300, shipping table $200, depreciation on the garage portion of basis): $500. Total Form 8829 deduction = $4,977. Gross income limit: $42,000 - other business expenses ~$25,000 = $17,000 cap. Limit is not binding. Deduction = $4,977. Federal income tax + SE tax savings = $4,977 x (22% + 14.13%) = $1,799.
Simplified method comparison: 300 sq ft cap x $5 = $1,500 maximum. The garage at 400 sq ft is capped to 300; deduction = $1,500. Federal income tax + SE tax savings = $1,500 x 36.13% = $542. Regular method wins by $1,257 in year-1 savings. Over a 5-year hold the cumulative regular-method advantage exceeds $6,000 before recapture (and the garage basis is much smaller than the dwelling basis, so recapture is small at sale).
Trap to avoid: If Marisol someday moves to a service business (jewelry repair instead of retail sale), the §280A(c)(2) inventory exception no longer applies and the garage must meet the strict exclusive-use test. Storing the car at the same time as inventory would disqualify the deduction under the post-pivot business model. Re-evaluate the test category every year as business model changes.
When This Calculator Does Not Cover Your Situation
- Daycare provider time-and-space allocation: Per §280A(c)(4), daycare providers compute the business-use percentage as (hours used for daycare divided by total hours in the year) times (daycare space divided by total home space). The hours numerator includes hours when the space is available to the daycare even if no child is present. The calculator's simple square-footage formula understates the daycare deduction; use Form 8829 Part I lines 4-7 directly.
- Pre-2013 depreciation under the regular method: The simplified method was introduced for tax years beginning January 1, 2013, and later. If you depreciated your home under the regular method in any year, switching to the simplified method does not erase the prior-year cumulative basis reduction - the depreciation portion is still recaptured at sale. Track pre-switch depreciation in a workpaper.
- Renters vs owners: Renters substitute rent (prorated by business %) for mortgage interest, real estate taxes, and depreciation. The calculator's regular-method input fields assume an owner; renters should put their annual rent in the "Mortgage Interest" field and zero out RE taxes and depreciation.
- Multiple homes used for business in same year: Under Rev. Proc. 2013-13, the simplified method is available for only one home in any tax year. If you used two homes for the same business (e.g., snowbird with primary residence + winter rental), the simplified method applies to one home and the regular method applies to the other; or both must use the regular method. The calculator assumes a single home.
- S-corp accountable plan reimbursement: Most S-corp shareholder-employees should not claim a personal Schedule C home office deduction (they are W-2 employees of the corporation). Instead, the corporation reimburses under an accountable plan per Treas. Reg. §1.62-2 and deducts on Form 1120-S; the reimbursement is excluded from the shareholder's W-2 wages. The calculator does not compute the accountable plan reimbursement directly.
- §280A(c)(6) self-rental to S-corp or C-corp: Renting space in your home to your own controlled corporation is permitted under §280A(c)(6) but the corporation's deduction for the rent is disallowed at the corporate level (the corporation cannot deduct rent paid to the owner-employee for a business use of the owner's residence) unless the arrangement is at arm's length and used as the principal place of business. This is a narrow trap with significant case law - the accountable plan path is usually cleaner.
- Home sale §121 exclusion interaction: The §121 home sale exclusion ($250,000 single / $500,000 MFJ on a primary residence held 2 of past 5 years) shelters appreciation gain, but does NOT shelter depreciation recapture under §1250. The calculator does not project the sale-year recapture exposure; check Form 4797 and Pub 523 before sale.
- State tax conformity: Most states conform to the federal home office deduction, but state-specific rules vary. California has separate rules for unreimbursed employee business expenses (some still allowed at the state level despite federal OBBBA disallowance). New York and several other states differ from federal on the gross income limitation carryover. Check state instructions.
- Hobby vs business determination: If the home-office activity is a hobby (no profit motive under §183), the home office deduction is not available. Continuous loss years (more than 2 of any 5 consecutive years for most activities) trigger the §183 safe-harbor analysis. The calculator assumes a business.
FAQ: 2026 Home Office Deduction
What is the 2026 home office deduction limit under the simplified method?
Under Revenue Procedure 2013-13, the simplified method allows a deduction of $5 per square foot of home used for qualified business purposes, capped at 300 square feet, for a maximum simplified deduction of $1,500 per year. The rate has not changed since the method was introduced for tax years beginning on or after January 1, 2013. The same $5 rate applies for tax year 2026 returns filed in 2027. The simplified method is claimed directly on Schedule C line 30 (or the equivalent line on Schedule F for farmers) without filing Form 8829. Depreciation is treated as zero under the simplified method, so there is no later depreciation recapture under section 1250 when the home is sold.
Can W-2 employees take the home office deduction in 2026?
No. OBBBA section 70110 made permanent the suspension of all miscellaneous itemized deductions subject to the section 67 two-percent of adjusted gross income floor, which includes unreimbursed employee business expenses formerly claimed on Form 2106 and Schedule A. Employees cannot claim a home office deduction for tax years 2018 through 2025 under TCJA, and the disallowance is now permanent under OBBBA. The narrow above-the-line exceptions in section 62(a)(2) - reservists, fee-basis state-local officials, qualified performing artists, eligible educators - do not include a home office deduction. The proper W-2 path is to negotiate an accountable plan home office reimbursement from the employer under section 1.62-2, which is excluded from W-2 wages with no income or FICA tax.
What are the two basic requirements for the home office deduction?
Per IRC section 280A(c)(1) and IRS Publication 587, the home office must satisfy two requirements: (1) Regular and exclusive use - you must use a specific area of the home exclusively and on a regular basis for business. Personal or family use of the same area defeats exclusivity. The area can be a whole room or a clearly identified portion of a room, but it cannot serve as a guest bedroom, family TV space, or homework area. (2) Principal place of business - the home must be your principal place of business for the trade or business, which can be satisfied if you use the home substantially and regularly to conduct administrative or management activities and you have no other fixed location where you conduct those activities (the section 280A(c)(1)(A) administrative/management safe harbor added by the Taxpayer Relief Act of 1997 in response to Soliman v. Commissioner). Two narrower exceptions: storage of inventory or product samples under section 280A(c)(2) does not require exclusive use, and daycare facility use under section 280A(c)(4) uses a time-and-space allocation rule instead of strict exclusive use.
What expenses can I deduct under the regular method?
The regular method (filed on Form 8829) deducts the business-use percentage of indirect home expenses plus direct expenses. Indirect expenses (shared with personal use, prorated) include mortgage interest, real estate taxes, homeowner's insurance, utilities (electricity, gas, water, internet, trash), rent (for renters instead of mortgage and depreciation), security system, general home repairs, and depreciation of the home (cost basis allocated to the business portion, recovered over 39 years for nonresidential real property). Direct expenses (used only in the home office, deducted 100 percent) include painting the office, repairs specific to the office, business-only phone line. Business-use percentage equals home office square footage divided by total home square footage, or the home office number of rooms divided by total rooms of approximately equal size.
How does the gross income limitation under section 280A(c)(5) work?
Section 280A(c)(5) caps the home office deduction at the gross income from business use of the home minus the business deductions that would be allowed without regard to the home office deduction. In practice the cap equals (Schedule C gross income from the home-office-related business) minus (other Schedule C deductions like supplies, advertising, vehicle, contract labor, etc.). The home office deduction cannot create or increase a Schedule C loss. Under the regular method, expenses above the gross income limit are carried forward to future years and can offset future home-office-related gross income (subject to the same limitation in the carryover year). Under the simplified method, the cap is the same, but excess is NOT carried forward and is permanently lost.
What is depreciation recapture under section 1250 for a home office?
If you claimed depreciation on the home under the regular method (Form 8829), the cumulative depreciation reduces the basis of your home and is recaptured as unrecaptured section 1250 gain when you sell. The unrecaptured section 1250 gain rate is 25 percent (the maximum rate; lower rates apply if your bracket is lower). Even if you qualify for the section 121 home sale exclusion ($250,000 single, $500,000 MFJ on a primary residence held for at least two of the past five years), the section 121 exclusion does NOT shelter the depreciation recapture - the depreciation portion of gain is always taxed at up to 25 percent. The simplified method assigns zero depreciation, so there is NO recapture under section 1250 when the home is sold (one of the simplified method's significant advantages for taxpayers planning to sell).
Can I switch between the simplified and regular methods?
Yes, you may choose either method for any taxable year, but you cannot change methods within the same tax year. The method is elected by using that method on your timely filed original federal income tax return. Once chosen for a year, the choice is irrevocable for that year. Switching is permitted year-by-year going forward. One important consequence: if you used the regular method in a prior year and switch to the simplified method this year, you cannot claim a depreciation deduction this year - but the prior-year cumulative depreciation still reduces the home's basis at sale. If you switch from the simplified method back to the regular method in a later year, depreciation must be computed using the appropriate optional depreciation table per Pub 587. Loss carryovers from a prior simplified year cannot be deducted; loss carryovers from a prior regular year survive only if the gross income test is met in the carryover year.
What is the inventory storage exception under section 280A(c)(2)?
Section 280A(c)(2) provides a narrow exception to the strict exclusive-use rule for taxpayers whose principal trade or business is the wholesale or retail sale of products. The taxpayer may deduct expenses allocable to space in the dwelling unit used regularly to store inventory or product samples, provided the dwelling unit is the taxpayer's sole fixed location of the trade or business. The space must be a separately identifiable space suitable for storage (basement corner, garage shelving, attic stockroom), but it does not need to be used exclusively for storage - mixed personal and storage use is permitted as long as the space is regularly used for storage. The deduction is the business-use percentage of indirect expenses allocable to the storage space. Section 280A(c)(2) covers retailers and wholesalers; service businesses and consultants cannot use this exception.
Can I claim a home office deduction for a separate structure on my property?
Yes. Per IRC section 280A(c)(1)(C), expenses for a separate free-standing structure (such as a studio, garage, barn, workshop, ADU, or detached office) on the same property as the residence are deductible if the structure is used exclusively and regularly for the trade or business. Critically, the separate structure does NOT have to be your principal place of business and does NOT have to be the only place where you meet patients, clients, or customers. This is the easiest test category in section 280A(c)(1) because the principal-place-of-business test is bypassed. The square footage of a separate structure is included in both the home office area and (typically) the total home area for the business-use percentage calculation; some practitioners exclude the separate structure from the total home denominator on the theory that a detached structure is not part of the dwelling unit, which can produce a higher business-use percentage.
Can S-corporation shareholders deduct a home office?
S-corp shareholder-employees cannot claim the home office deduction on Schedule C (they are W-2 employees of the corporation, not self-employed). The standard recommended path is an accountable plan reimbursement from the S-corp to the shareholder under Treas. Reg. section 1.62-2: the corporation establishes a written accountable plan, the shareholder submits a substantiated home office expense report (square footage, allocable mortgage interest, real estate taxes, utilities, insurance, depreciation), and the corporation reimburses the shareholder. The reimbursement is excluded from W-2 wages with no income or FICA tax to the shareholder, and the corporation deducts the reimbursement on Form 1120-S as a business expense. Direct rental of home space to the S-corp (a section 280A(c)(6) self-rental) is permitted but disallows the deduction at the corporation level if not at arm's length and creates passive activity loss complications. Schedule C is not available because the shareholder is not a sole proprietor for the home-office activity.
Official Sources
- IRS Publication 587 (2025) - Business Use of Your Home (Including Use by Daycare Providers); applies to 2026 returns until updated. Regular method, simplified method, daycare time-and-space allocation, inventory storage exception, depreciation, gross income limitation.
- IRS - Simplified Option for Home Office Deduction - $5 per sq ft, 300 sq ft cap, $1,500 max; no depreciation; no recapture.
- Revenue Procedure 2013-13 (PDF) - Safe harbor method for computing the home office deduction; original simplified method authority.
- 2025 Instructions for Form 8829 (PDF) - Expenses for Business Use of Your Home; line-by-line regular method instructions; daycare time-and-space formulas.
- About Form 8829 - Expenses for Business Use of Your Home (Form, instructions, prior-year forms).
- IRS Topic 509 - Business use of home (concise official summary).
- IRS FAQs - Simplified Method for Home Office Deduction - Common simplified method questions with official answers.
- IRC §280A - Disallowance of Certain Expenses (Cornell LII) - Statutory authority for home office deduction; tests under (c)(1); inventory storage (c)(2); daycare (c)(4); gross income limit (c)(5); self-rental (c)(6).
- 26 CFR §1.280A-2 - Treasury regulations for home office expense (Treas. Reg. on principal place of business and exclusive use).
- IRC §67 - 2% Floor on Misc Itemized Deductions (Cornell LII) - OBBBA §70110 made permanent.
- IRC §121 - Home Sale Exclusion (Cornell LII) - $250K / $500K exclusion does NOT shelter §1250 depreciation recapture.
- IRC §1250 - Depreciation Recapture on Real Property (Cornell LII) - Unrecaptured §1250 gain at 25% max rate.
- 26 CFR §1.62-2 - Accountable Plan Reimbursements (Cornell LII) - Path for S-corp shareholders and W-2 employees.
Decision Step: How Should You Approach the Home Office Deduction?
Route A - Self-Employed With Small Office (Under 300 Sq Ft) and Low Home Expenses
Use the simplified method. $5 per square foot up to 300 sq ft for a max of $1,500. No Form 8829, no depreciation tracking, no recapture at sale. Mortgage interest and real estate taxes stay 100% on Schedule A. Recordkeeping burden is minimal - keep proof of the office square footage and the §280A(c)(1) business-use tests. Read the Home Office Deduction Guide for the substantiation walkthrough and run the Self-Employment Tax Calculator for combined SE + income tax savings.
Route B - Self-Employed With Larger Office or High Home Expenses
Compare both methods using the calculator above. Regular method on Form 8829 typically wins when the office is over 300 sq ft, the home has high indirect expenses (mortgage interest + utilities + insurance + repairs), or when you intend to hold the home long enough that the cumulative regular-method advantage exceeds the recapture cost at sale. Track home basis annually in a workpaper. Read the guide for Form 8829 line-by-line and the §1250 recapture math.
Route C - W-2 Employee Working From Home Full-Time
You cannot deduct the home office on your personal return. OBBBA §70110 made the disallowance permanent. The correct response is to negotiate an accountable plan home office reimbursement from your employer under Treas. Reg. §1.62-2 - reimbursement at the actual cost of office space is excluded from W-2 wages with no income tax or FICA. If your employer refuses, the cost is a hidden after-tax pay cut. Push back at hiring and at annual review; remote-work employers increasingly include "home office stipend" in compensation packages. Read the guide for the OBBBA §70110 walkthrough.
Route D - S-Corp Shareholder or Partner
S-corp shareholder-employees: do not claim a personal Schedule C deduction. Set up an accountable plan in the corporation under Treas. Reg. §1.62-2 and reimburse yourself for documented home office expenses; the corporation deducts on Form 1120-S, you exclude from W-2 wages. Partners: if the partnership agreement requires partners to pay their own home office expense, claim as unreimbursed partnership expense on Schedule E Part II (UPE). Either path bypasses the §280A(c)(5) gross income limit complications. See the S-Corp Savings Calculator for combined entity + personal tax planning.
This calculator is for educational and illustrative purposes only. It does not constitute tax, legal, or financial advice. The home office deduction interacts with the §121 home sale exclusion, the §1250 unrecaptured gain rules, the §199A QBI deduction, the §179 expensing limits for office equipment, the §163(h)(3) mortgage interest deduction, the SALT cap under OBBBA, daycare time-and-space rules, partnership / S-corp accountable plan rules, and state income tax conformity issues that this tool does not fully model. Consult a qualified tax professional before electing the regular method, especially for high-basis homes where the depreciation recapture exposure at sale is material. Tax laws are subject to change.