Good and Bad News About The Home Office Tax Deduction

Article Highlights:

  • Home Office 
  • Qualifications 
  • Actual-Expense Method 
  • Simplified Method 
  • Income Limitation 
  • Employee Deduction 
“Home office” is a type of tax deduction that applies to the business use of a home; the space itself may not actually be an office. This category also includes using part of a home for storing inventory (e.g., for a wholesale or retail business for which the home is the only fixed location); as a day care center; as a physical meeting place for interacting with customers, patients, or clients; or the principal place of business for any trade or business.

Generally, except when used to store inventory, an office area must be used on a regular and continuing basis and exclusively restricted to the trade or business (i.e., no personal use). Two methods can be used to determine a home-office deduction: the actual-expense method and the simplified method.

Actual-Expense Method – The actual-expense method prorates home expenses based on the portion of the home that qualifies as a home office; this is generally based on square footage. These prorated expenses include mortgage interest, real property taxes, insurance, heating, electricity, maintenance, and depreciation. In the case of a rented home, rent replaces the interest, tax, and depreciation expenses. Aside from prorated expenses, 100% of directly related costs, such as painting and repair expenses specific to the office, can be deducted.

Simplified Method – The simplified method allows for a deduction equal to $5 per square footage of the home that is used for business, up to a maximum of 300 square feet, resulting in a maximum simplified deduction of $1,500.

Even if you qualify for a home-office deduction, your deduction is limited to the business activity’s gross income—not, as many people mistakenly believe, its net income. The gross-income limitation is equal to the gross sales minus the cost of goods sold. This amount is deducted on a self-employed individual’s business schedule.

The good news is that, under the tax reform, the home-office deduction is still allowed for self-employed taxpayers. The bad news is that this deduction is no longer available for employees, at least for 2018 through 2025. The reason for this change is that, for an employee, a home office is considered an employee business expense (a type of itemized deduction); Congress suspended this deduction as part of the tax reform.

If you have concerns or questions about how the home-office deduction applies to your specific circumstances, please give this office a call.

Share this article...

Want our best tax and accounting tips and insights delivered to your inbox?

Sign up for our newsletter.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

Our Offices

Our expertise is widespread and we have multiple office locations to make it convenient for you to get help. You can find us at:

Oregon Office

4545 SW 96th Ave
Beaverton, Oregon 97005
Monday through Friday:
9am to 5pm and by appointment

April-December
Monday through Thursday
10am to 2pm

Connecticut Office

P.O. Box 271356
West Hartford, Connecticut 06127
By Appointment Only

Idaho Office

2020 Blaine St.
Caldwell, Idaho 83605
Monday through Friday:
9am to 5pm and by appointment

April-December
Monday through Thursday
10am to 2pm