Simplified vs regular method
| Simplified method | Regular method | |
|---|---|---|
| How it works | $5 per square foot, up to 300 sq ft ($1,500 max) | Business-use share of your actual home costs, plus depreciation if you own |
| Records needed | Office size and that it's used only for business | Receipts and bills for every home cost |
| Depreciation | None, and none to pay back when you sell | Allowed, but may be "recaptured" (taxed) when you sell |
| Unused amount | Can't be carried forward | Can be carried forward |
How to use this calculator
- Measure your office. It must be used regularly and only for business.
- Enter your whole home's size to work out the business share.
- Add up yearly home costs: rent or mortgage interest, utilities, homeowner's or renter's insurance and general repairs.
- Enter your business profit before the home office deduction, since the deduction can't exceed it.
How it's calculated
Worked example
Alex rents a 1,500 sq ft apartment and uses a 200 sq ft room only as an office. Rent and utilities come to $24,000 a year, and Alex's business profit is $50,000.
The regular method gives Alex $3,200, more than three times the simplified method, because rent is high. In a cheaper home, or for a bigger office, the simplified method can come out ahead and saves record-keeping.
What this calculator doesn't cover
- Depreciation for homeowners under the regular method (Form 8829), which would make the regular method larger.
- Costs that only relate to the office itself (direct expenses), such as painting just that room, which are 100% deductible.
- Daycare facilities and storage of inventory, which have special rules.
Frequently asked questions
Who can claim the home office deduction?
Self-employed people who use part of their home regularly and only for business, as their main place of business or to meet clients. Employees working from home generally can't claim it on their federal return.
Does a desk in my living room count?
Usually not. The space must be used only for business. A separate room or a clearly defined area used for nothing else is much safer.
Can I change method each year?
Yes. You can choose either method each year.
Sources: IRS simplified option for home office deduction, IRS Publication 587.